The Public Policy

Obamacare Sequesters Your Flex Account

How to minimize the damage from Obamacare's stealth tax hikes.

By 11.23.11

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Attention Joe and Jane Citizen! Concerned about the fiscal future of your country and your family? Then please step away for five minutes from the nonstop TV coverage of the Super Committee breakdown, and get information about a matter much more important to your country and your family's prosperity.

You are being told that because the House-Senate Joint Select Committee on Deficit Reduction, created last August as a compromise in the debt ceiling fight, failed to reach a "solution" by Thanksgiving, there will be dire consequences as government spending has to be "sequestered" from the budget in 2013. But the real worry you should have about 2013 is the permanent sequestration of the money you can contribute to your flexible spending account due to the stealth tax hikes of Obamacare.

Back in 2010 when she was Speaker of the House, Rep. Nancy Pelosi said Congress had to pass the health care bill into law, so the public could know what's in it. And it won't be until the beginning of 2013 that most of the public will know that one of the things in the bill was a tax-free dollars that can be put aside for medical expenses in a flex account to just $2,500 per year. Especially for large families, this is in effect a marginal tax hike on health expenses of as much as 40 percent!

The flex account limits is one of the gimmicky "revenue enhancements" that allows Obamacare supporters to say it reduces the deficit. Other accounting tricks include the now-repealed 1099 mandate, which required firms to report to send a form to the IRS every time they bought a good or service valued at $600 or more.

The "medicine cabinet tax," which went into effect earlier this year and applies to both flex accounts and health savings accounts, puts in the additional headache of getting a prescription for every over-the-counter medicine bought with the account. But any short-term tax savings will almost certainly end up resulting in higher costs in the long run, as more patients needlessly visit the doctor for OTC prescription or just buy more expensive prescription medications.

But the flex attack that will begin in 2013, after the next election, of course, will potentially be Obamacare's most devastating tax hike, or "revenue enhancement." All families, no matter their income or number of children, will be capped at putting $2,500 in their flex accounts. However, it will hit those families with disabled children the hardest.

"Families with special-needs children and people with chronic illnesses stand to lose hundreds, if not thousands, of dollars in tax benefits," reports FoxNews.com. The article notes that "policy groups estimate that people with chronic illnesses face more than $4,000 annually in out-of-pocket expenses. Flex account money can go toward that."

The semi-good news is that depending on your and your family's needs, there are things you can do to minimize this hit. But you have to take action in the next couple weeks, and plan your 2012 flex accounts accordingly.

Consider putting in higher than normal amounts in the flex accounts for 2012, even doubling or tripling the amount. Then, to the extent you can, get certain procedures done this year and pay upfront for multiyear treatments such as your children's braces before the cap hits in 2013.

If you're thinking about laser eye surgery, which often isn't covered by insurance, you have a strong case for getting it done in 2012. If you know your kids are getting braces that they will wear for two or three years, pay more of the cost upfront in 2012, before the $2,500 cap hits in 2013.

Your orthodontist or doctor's office will usually be cooperative in helping you take care of the costs earlier, and they often like to get paid earlier, anyway. And remember, at the beginning of the year, all of the flex deductions that will be taken for the year are loaded onto your card. That means you can use the card to for the entire year's worth of your flex account starting at the beginning of January, even though the amount is deducted from your account paycheck-to-paycheck over twelve months.

Even if you have some money left over in next year's account, you can use it for things like extra pairs of glasses. And isn't even ten pairs of glasses better than your money going into federal coffers to fund bureaucracies such as Obamacare's Independent Payment Advisory Board (IPAB), which have the purpose of rationing your future care?!

You can also support legislation that repeals this tax attack on flex accounts publicized on the website SaveMyFlexPlan.org.

So this Thanksgiving, enjoy your turkey and stuffing, give thanks for living in the freest country on Earth, and resolve to keep it that way. Don't get taken in by the doom-and-gloom news reports of the Super Committee's failure to, as Matt Patterson put it here on OpenMarket, put a Dixie cup of water on the bloated government fire. Instead, focus on slaying the real dragons like Obamacare, and while they are here, shielding your family from them as best you can.

For your country and your family's sake, don't give a dime more of your tax dollars to the edifice of Obamacare than you are legally required to.

(Since individual circumstances vary, please consult your tax or financial adviser on the personal recommendations in this column.)

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About the Author
John Berlau is Senior Fellow for Finance and Access to Capital at the Competitive Enterprise Institute and blogs at OpenMarket.org.