It doesn’t look like we’re going to get universal single payer healthcare in the United States in this lifetime. While I would in theory be willing to go to war and overthrow a government in order to change this, let’s hear me out on a proposal that will placate me for at least a year.
Get rid of Flexible Spending Accounts.
The idea of FSAs is that we should know ahead of time how much we’re likely to need to spend on qualified healthcare expenses, and put that that amount of pretax income into a special account that can only be used for those qualified expenses, thereby giving you a discount equivalent your income tax burden for the income you deposited there.
If you don’t spend all that money, you lose it. Meaning, you are effectively taxed at a 100% rate for whatever money you don’t spend out of your FSA. This encourages people to do two things: under-provision, and over-spend.
You under-provision, to ensure that you spend all the money that you allocate to the FSA, rather than lose it. And if you have any money left over at the end of the year, you have to go looking for anything you can spend it on, using it to pay for electives that you don’t need, or frivolous hoarding of supplies like first aid supplies and over-the-counter pharmacy.
A certain amount of money can roll over to your account for the next year, but anything over that amount is just… gone. Does the FSA administrator just keep it? Does it go back to your employer as refunded compensation? Does it go to the IRS? Doesn’t really matter, does it? All you need to know is it’s not your money anymore.
You can’t take money out of your “flexible” spending account, pay your taxes on it, and spend it on non-qualified expenses, or simply put it in a regular savings account. Suddenly need to pay for an expensive car or home repair? Have a lot in your FSA that you don’t need to spend on healthcare because you’re healthy? Too bad, take out a loan.
If you end up under-estimating your medical expenses due to your inability to predict the future, you end up having to pay the overage using post-tax dollars. There’s no way to adjust the amount of your pre-tax income goes into your “flexible” spending account. You set it once, and unless you experience a “qualifying life-changing event”, it’s fixed for the year. That’s kindof the opposite of most people’s definition of “flexible”, but what do I know, right?
Replace it with something better for everyone
So, really, the true solution is to replace our stupid, wasteful, evil healthcare administration system with a universal single-payer system, like the entire rest of the world has figured out is much better for everyone. But this is America, so let’s accept for the time being that this will never happen, because a ridiculous number of people do not like to be healthy, or have money.
What could we do instead of FSAs that would be better, easier, and available to everyone, regardless of whether their employer provides them with benefits?
Simply: make all expenses that are designated as qualified expenses for FSAs deductible from your gross income on your taxes.
Just spend add up all your qualified expenses over the year, and deduct it from your gross income when you file your taxes at the end of the year.
No special account. No account administrators. No claims and processing. No estimating. No use it or lose it. No under-estimating. No over-spending. Simply 100% of qualified expenses paid for with pre-tax income.
I mean, why don’t we?