By Tom Curry National affairs writer
updated 10/7/2009 9:48:48 AM ET 2009-10-07T13:48:48

Claim: Flexible spending accounts would be banned or curtailed under the insurance overhaul.

Under current law, employers can set up flexible spending accounts (FSAs) that allow workers to set aside money on a pre-tax basis to use to pay for medical expenses that aren’t covered by insurance. By putting money into an FSA, employees reduce their cash compensation, which can also reduce their taxes. Current law does not specify the amount a worker can put into an FSA, but some companies limit FSA contributions to between $2,500 and $5,000 a year. Some lawmakers see a curb on FSAs as a new source of tax revenue.

Fact or fiction?
A little of both. The Senate Finance Committee bill does not ban FSAs. It does limit contributions by an employee to a FSA to $2,500 a year. This would raise an estimated $14.6 billion in new tax revenue over 10 years, due to workers having higher taxable incomes than they would have had by using FSAs. Critics of this change in the law argue that since the $2,500 cap is not indexed to the inflation rate, it will effectively make FSAs dwindle in value every year. The main House insurance reform bill does not have a similar provision limiting FSAs.

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