HOUSE BILL REPORT
HB 1286
As Reported by House Committee On:
Appropriations
Title: An act relating to creating the medical flexible spending account.
Brief Description: Creating the medical flexible spending account.
Sponsors: Representatives Cody, Simpson, Morrell and Kenney; by request of Office of Financial Management.
Brief History:
Appropriations: 2/3/05, 2/17/05 [DP].
Brief Summary of Bill |
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HOUSE COMMITTEE ON APPROPRIATIONS
Majority Report: Do pass. Signed by 27 members: Representatives Sommers, Chair; Fromhold, Vice Chair; Alexander, Ranking Minority Member; Anderson, Assistant Ranking Minority Member; McDonald, Assistant Ranking Minority Member; Bailey, Buri, Clements, Cody, Conway, Darneille, Dunshee, Grant, Haigh, Hinkle, Hunter, Kagi, Kenney, Kessler, Linville, McDermott, McIntire, Miloscia, Pearson, Priest, Schual-Berke and Walsh.
Staff: David Pringle (786-7310).
Background:
Health Care Flexible Spending Accounts (FSAs) are benefit plans established by employers
under Section 125 of the federal Internal Revenue Code to reimburse employees for health
care expenses such as health care deductibles, copayments, eligible non-prescription
medications, and other items not covered by insurance. The FSAs are usually funded by
employees through salary reduction agreements; however, employers are permitted to
contribute.
An employee must elect to participate in a FSA at the beginning of each year, and during the
plan year the amount of salary deducted for a member's FSA is irrevocable unless the person
experiences a change in circumstances that meet certain requirements specified in federal
law. An employee's balance builds each month as salary deductions are placed in the
account, and is reduced by reimbursements for eligible expenditures. Any unspent balance
remaining in an employee's FSA at the end of each year is forfeited.
Employee (or employer) contributions to FSAs are made from an employee's salary prior to
reductions for taxes, and reimbursements from FSAs are also tax exempt. As employee
contributions to an FSA are made prior to reductions for income tax, Social Security, and
Medicare, they offer employees with anticipated uninsured medical expenses the opportunity
for significant tax savings. An employee in the 25 percent tax bracket, for example, who
decides to deposit $900 in a FSA and spends the entire balance on eligible medical expenses
during the year would save about $225 on federal income taxes and $69 in Social Security
and Medicare taxes.
In the 1995 bill, 2ESHB 1566, the Legislature authorized the Washington State Health Care
Authority (HCA) to administer the benefits contribution plan, and, subject to the approval of
the Office of Financial Management, expand the benefits to include a medical flexible
spending arrangement.
Summary of Bill:
A Medical Flexible Spending Account (MFSA) is created in the custody of the State
Treasurer. Revenues from employing agencies associated with the cost of operating the
medical FSA program and unclaimed FSA money left at the end of the plan year are
deposited into the MFSA. Money may also be transferred from the MFSA to the Public
Employees' and Retirees' Insurance account, and from the Public Employees' and Retirees'
Insurance account to the MFSA to provide for reserves and start-up funding for the operation
of the FSA program.
Every division, department, or agency and participating counties, municipalities, school
districts, educational service districts, or other political subdivisions must fully cooperate
with the HCA and carry out all actions necessary for the operation of the HCA-administered
programs. These agencies must also report all data relating to employees eligible to
participate in the HCA programs in a format designed by the HCA.
Appropriation: None.
Fiscal Note: Available.
Effective Date: The bill takes effect 90 days after adjournment of session in which bill is passed.
Testimony For: The HCA already operates a pilot FSA program, but this bill authorizes us to expand it and create a reserve fund mechanism to pool the risk that individual employees and employers would face. The collective bargaining agreements all specify that these will be offered. They provide a valuable tax benefit and items that can be reimbursed are broadly defined in federal law. This operates very similarly to the Department of Retirement Systems-administered Dependent Care Assistance Program.
Testimony Against: None.
Persons Testifying: Pete Cutler, Health Care Authority.