Fix the Unflexible Flexible Health Care Spending Account

I think universal health care is conceptually a nice idea but fiscally unrealistic . I don't know how we pay for it but I have a suggestion that should allow each of us to save for unexpected health care bills that can break the bank.

Many people have access to flexible healthcare spending accounts. These accounts are great for supplementing co-pays, out of pocket medical expenses, medicine and other medical expenses pre-tax. The problem with these accounts, per IRS rules, is that you have to exhaust the funds by the end of the year or you lose the funds. So in reality, you really only save for estimated expenses that you know that you will spend in a year and at the end of the year you might run out and buy a bunch of aspirin or cold medicine to exhaust your funds. In addition, from a cash flow standpoint, most people can really only contribute a small amount each year.

My suggestion, why not allow these accounts to roll-over each year tax free? Since many medical expenses are a surprise, this roll-over may pay for the costs that you are responsible for paying depending on the year of the expense and the amount accumulated. This would allow for improved individual responsibility of medical expenses. Pre-tax gives you an immediate rate of return and Congress can structure these accounts so that the administrators can give investment choices for these accounts that allow them to be invested in vehicles that match inflation. We don't need big returns on these accounts, just keep up with inflation. In addition, small administrative fees could be collected by the holding company to manage the accounts.

If you invest in your 30s and don't have a major expense until you are 60, you would have 30 years of pre-tax dollars to help cover the medical expenses. In addition, just like today, if the funds are used for medical expenses, no tax consequence. Finally, I would suggest that these accounts could be passed down to the estate for future medical expenses. If someone takes money out of the account for anything other than healthcare, severe tax penalties would result and appropriately so.

The problem with our saving structure today is no one can really save for unforseen medical expenses. I haven't heard any candidate suggest this, so there could be a hole in my thinking, feel free to respond and give me your view on my suggestion. Shoot holes in it.