Hearing on the Impact of Limitations on the Use of Tax-Advantaged Accounts for the Purchase of Over-the-Counter Medication
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
COMMITTEE ON WAYS AND MEANS
WALLY HERGER, California
|SANDER M. LEVIN, Michigan
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
JIM MCDERMOTT, Washington
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
XAVIER BECERRA, California
LLOYD DOGGETT, Texas
MIKE THOMPSON, California
JOHN B. LARSON, Connecticut
EARL BLUMENAUER, Oregon
RON KIND, Wisconsin
BILL PASCRELL, JR., New Jersey
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
JENNIFER M. SAFAVIAN, Staff Director and General Counsel
SUBCOMMITTEE ON OVERSIGHT
DIANE BLACK, Tennessee
|JOHN LEWIS, Georgia
XAVIER BECERRA, California
RON KIND, Wisconsin
JIM MCDERMOTT, Washington
C O N T E N T S
Mr. Scott M. Melville
President & Chief Executive Officer, Consumer Healthcare Products Association
Dr. Joel M. Feder
D.O., F.A.C.O.F.P., Captain MC, USN (Ret.), American Osteopathic Association
Mr. Steven Taylor
Chief Executive Officer, Sjogren’s Syndrome Foundation
Ms. Jennifer Hatcher
Senior Vice President, Government & Public Affairs, Food Marketing Institute
Mr. Paul N. Van de Water
Senior Fellow, Center on Budget and Policy Priorities
Hearing on the Impact of Limitations on the Use of Tax-Advantaged Accounts
for the Purchase of Over-the-Counter Medication
U.S. House of Representatives,
Committee on Ways and Means,
The subcommittee met, pursuant to call, at 2:30 p.m., in Room 11002, Longworth House Office Building, Hon. Charles Boustany [chairman of the subcommittee] presiding.
[The advisory of the hearing follows:]
Chairman Boustany. The subcommittee will come to order. I would like to welcome everyone to this afternoon’s hearing on the limitations of the Democrats’ health care law that places on consumers use of tax‑advantaged plans to purchase over‑the‑counter medication.
Millions of Americans use tax‑advantaged plans to save for medical expense. Plans such as flexible spending arrangements, health reimbursement arrangements, health savings accounts allow consumers to set aside funds for out‑of‑pocket health care expenses such as deductibles, co‑payments, and until recently over‑the‑counter products not typically covered by insurance. Contributions to and distributions from these plans are generally tax exempt and make health care more affordable to well over 40 million families.
Until 2011, families with tax‑advantaged plans could use these funds to purchase over‑the‑counter medications such as allergy medication, cold and flu remedies, first‑aid products without a doctor’s prescription. However, to pay for the massive entitlement expansion in the President’s health care law the new law required that consumers using tax‑advantaged plans must first obtain a doctor’s prescription in order to use tax‑preferred account funds to purchase over‑the‑counter medication. This provision alone is a $5 billion tax increase on the American people.
As a result, millions of Americans now first have to visit a physician’s office before going to a drugstore to purchase cold medicine with their FSAs, for example. This leads to increased wait times in doctors’ offices, greater cost both in time and dollars for consumers and potential delay in obtaining treatment. This policy was not enacted to cure a problem or to promote better health care spending, this was done to raise revenue, pure and simple.
When the new law was first enacted the American Medical Association wrote that the limitations would, I quote, increase cost to the health care system, generate unnecessary physician office visits and place a new administrative burden on doctors, end quote. A Wall Street Journal article from last year quoted one pediatrician as saying, and I quote, I am now doing the IRS’s work and that is what I resent most, end quote.
This afternoon’s hearing is not designed to be a broad debate about the 2010 health care law. Instead it is to examine one provision in the new health care law and hear from our witnesses how this is affecting consumers, physicians, job creators in the health care sector.
And with that I want to welcome our witnesses here today, and I look forward to a fruitful discussion on this very important topic. Ranking Member Lewis has been detained. He should be here shortly. But I will now yield to my friend Mr. Becerra from California for the purposes of an opening statement.
Mr. Becerra. Thank you, Mr. Chairman, for holding this hearing today. Health care is an important topic that touches the lives of millions of Americans. The Affordable Care Act will expand comprehensive health insurance coverage to over 30 million Americans and has already insured millions of young adults and people with preexisting conditions. It contains important insurance reforms that will benefit both those who are insured today and those who are not insured.
The Affordable Care Act will reduce the deficit by over $120 billion over ten years and over $1 trillion over 20. The Act did not add to the deficit and was fully paid for by a number of provisions. One of those provisions is before us today, a provision that affects the tax treatment of reimbursements for over‑the‑counter medicines from certain tax-favored accounts.
The provision before us today raised about $5 billion. This provision was initially suggested in a 2005 report from the Joint Committee on Taxation as an option to improve tax compliance. The new rule states that over‑the‑counter medications may no longer be reimbursed from flex spending accounts, health savings accounts or health reimbursement accounts without a prescription from a physician.
I look forward to hearing from the witnesses today. I would like to learn more about how the new rule is affecting taxpayers and the health care system and how any changes to this provision would interface with the notion and desire for tax reform. Many people, including some on this committee, have said that we should eliminate all tax expenditure programs, which are those specialty programs that affect only certain populations within the Tax Code, and this would fall within the category of one of those tax expenditure programs. And I would be very interested to see what the witnesses have to say about that.
So, Mr. Chairman, I thank the witnesses in advance for their testimony and their willingness to share their experiences. And with that, I yield back the balance of my time.
Chairman Boustany. I thank the gentleman from California. And let me just say that I ask unanimous consent that all members’ written statements be included in the record. Without objection so ordered. And when Mr. Lewis gets here I will also allow him out of courtesy to give an opening statement since he is ranking member of this subcommittee.
I want to thank our witnesses for being here this afternoon. We will hear from Scott Melville, President of the Consumer Health Care Products Association. Mr. Melville, welcome. We have Dr. Joel Feder, a member of the American Osteopathic Association. Welcome, sir. Steven Taylor of the Sjogren’s Syndrome Foundation. Mr. Taylor, welcome. Jennifer Hatcher, who is Senior Vice President of the Food Marketing Institute. Ms. Hatcher, welcome. And Peter Van de Water, Senior Fellow of the Center on Budget and Policy Priorities. Welcome. I want to thank you all for being here today. You will each have 5 minutes to give your statements for the record, but your full written statements will be included in the record of this hearing.
Mr. Melville, we will begin with you. You have 5 minutes.
STATEMENT OF SCOTT M. MELVILLE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CONSUMER HEALTHCARE PRODUCTS ASSOCIATION, WASHINGTON, D.C.
Mr. Melville. Thank you, Chairman Boustany, Ranking Member Lewis, other members of the subcommittee. Thank you for holding this hearing and inviting me to testify on behalf of the Consumer Health Care Products Association, the national association representing manufacturers and distributors of over‑the‑counter medicines and dietary supplements.
OTC medicines are a vital part of our Nation’s health care system and often serve as a first line of treatment for many common self‑manageable conditions like colds, allergies, heartburn and headaches. OTC medicines are like prescription medicine pharmaceuticals regulated by the Food and Drug Administration. However, OTCs can be purchased by consumers without a prescription because the FDA has determined that the medicine can be safely used by a consumer without the intervention of a doctor or other health care professional.
This broad availability of OTC medicines 24/7 in a wide range of retail outlets, including pharmacies, provides tremendous benefit to both consumers and our health care system. In fact, a recent study by Booz & Company estimated that OTCs provide $102 billion in benefits to our Nation’s health care system every year. These benefits are realized first through reduced doctor visits accounting for approximately $77 billion of those savings; and, two, reduced drug costs relative to prescription products accounting for $25 billion. Consumers, public and private payors and the economy all benefit. The authors concluded that each dollar spent on OTC medicine saves the Nation’s health care system $6 to $7.
Access to OTC medicines empowers consumers and allows them to take greater control over their health care and their health care spending. So do flexible spending arrangements, or FSAs, which were designed to help Americans afford the portions of health care costs not covered by insurance. In 2003 the Internal Revenue Service first authorized the use of FSAs for the purchase of OTC medicines, confirming their equal status with prescription pharmaceuticals for purposes of FSA eligibility. In subsequent years millions of consumers budgeted for their health care, set aside pretax money and utilized FSA continuance to purchase OTC medicines. Retailers made it a seamless transaction by identifying eligible products and processing the payment electronically through the consumer’s FSA accounts.
Unfortunately, for consumers and the health care system that efficient process ended on January 1, 2011. That is when a provision in the Affordable Care Act took effect that requires consumers to seek a prescription for a medicine that doesn’t require one if they want to utilize their FSAs to purchase an OTC medicine. There is no medical or regulatory justification for this. It is simply a legal requirement under the new law if they want to use their tax‑advantaged FSA.
This leaves consumers with three options. One, to seek an unnecessary doctor’s appointment to get a prescription and then submit the purchase for reimbursement under their FSA account. Two, to purchase the OTC medicine out of their own pocket which will raise the cost of the product to the consumer between 10 or 35 percent depending on their individual tax bracket. Or three, go without treatment. None of these options we would suggest are good health care policy, none of these options increase health care access, but they do increase cost to consumers and to our health care system.
According to the Employers Council on Flexible Compensation, the average FSA participant earned approximately $55,000 per year and contributed around $1,400 to their FSA in 2008, the latest data that we were able to access. Clearly FSA accounts benefit a broad cross‑section of America. And a recent Neilsen study found that of 19 American households that participated in a FSA program roughly half of them used their FSAs to purchase OTC medicines before the treatment was changed.
Now, our industry is not alone in advocating for restoration of eligibility of OTCs under FSA accounts, and we are pleased there is a growing bipartisan support in Congress to do just that. CHPA is one of the founding members of the Health Choices Coalition, which includes physicians, patient groups and retailers that is dedicated to restoring OTCs to tax‑preferred status. The coalition supports legislation sponsored by Representative Lynn Jenkins and Shelley Berkley and also Representative Diane Black, and also supports bills sponsored by Representative Erik Paulsen and co‑sponsored by you, Chairman Boustany, and Representative Aaron Schock as well. We thank these members for leading the fight. If we are not successful, this unnecessary policy will continue to cost Americans time, money and needless suffering.
Mr. Chairman, thank you again for allowing me the opportunity to testify before this subcommittee, and I will be happy to answer any questions you may have.
[The statement of Mr. Melville follows:]
Chairman Boustany. Thank you, Mr. Melville. Dr. Feder, you may proceed.
STATEMENT OF DR. JOEL M. FEDER, D.O., F.A.C.O.F.P., CAPTAIN MC, USN (RET.), AMERICAN OSTEOPATHIC ASSOCIATION, OVERLAND PARK, KS
Dr. Feder. Chairman Boustany, Ranking Member Lewis, Representative Jenkins and members of the subcommittee, thank you for the opportunity to testify before you today.
As an osteopathic physician board certified in family medicine, I have treated patients for 36 years. The osteopathic profession has a strong and distinguished history of educating, training and placing physicians in underserved communities. Today over 60 percent of all osteopathic positions practice in a primary care specialty.
Over the years I have witnessed efforts to enhance access to quality health care and promote patient centered care. Today I share with you my personal experience of how the new restrictions placed on consumers choosing to use their tax‑advantaged account to purchase over‑the‑counter medications has affected my practice and my patients.
As a physician my paramount concern is developing and preserving a strong relationship with my patients. I along with my colleagues strive to empower patients to make decisions regarding their health while still coordinating their care. In doing so, I aim to put practices into place that allow them to stay out of the office as a result of good health.
In my experience with this new requirement the majority of the patients that request a prescription for an OTC medication are doing so to address a simple cold or allergy. However, this still requires an appointment slot normally allocated for other patient needs. As a result my time available to treat patients with more serious health care needs has reduced significantly. On average I see about 25 patients per day, spending 15 to 20 minutes with each patient, 90 percent of whom visit my office for traditional care ranging across a wide array of health care needs, plus 10 percent who are simply requesting a prescription for OTC medication and in some instances numerous medications.
My practice is a relatively small practice with five providers, including four physicians and one advanced registered nurse practitioner. We have an administrative staff of 10 working in the office who are extremely busy processing paperwork to keep the office running and filing claims for the patient care my partners and I provide. The additional task of processing requests for appointments for OTC prescriptions is an unnecessary burden. This new burden is in addition to the further demands on physician practices, including the adoption of electronic health records and electronic prescribing systems, preparation for coding under ICD‑10, implementation of quality measures and adjusting to other changes in the health care delivery system. These additional policies and procedures are important; however, each new requirement can be quite costly to small physician practices.
As you know, physicians work hard to establish a trusting relationship with their patients. Generally patients choose to see their physician when they truly believe they need care. And my experience is most patients feel inconvenienced and unhappy with a new prescription requirement and enter my office with that mindset. As a result, I am potentially placed in a difficult and uncomfortable situation with a patient by possibly refusing to provide a prescription, charging for that service and/or recommending the patient purchase a different higher cost alternative. For instance, I do not agree with the practice of using OTC medicines as a source of renewed energy. A patient might then seek to choose another physician who is willing to write their prescription, which further fragments the important physician‑patient relationship.
We must remember that the FDA has already deemed these products safe and appropriate for direct over‑the‑counter sale to consumers, yet after writing the prescription physicians may be subject to new liability for any potential interactions they might have with other over‑the‑counter medications my patient has taken which the patient may or may not be willing to disclose.
In closing, restricting consumers who choose to use their tax‑advantaged account to purchase OTC medications by requiring them to obtain a prescription from their physician is unnecessary and disruptive to efficient care delivery. This restriction creates an unnecessary burden upon me as a physician, upon my practice and, most importantly, upon my patients.
I would again like to thank you and members of the committee for affording me the opportunity to share my experiences and the AOA’s perspective regarding this important topic affecting osteopathic physicians and our patients. We appreciate the work that you do to promote policies that advance patient centered quality care that is cost effective for the health care system. We look forward to working with you in the weeks and months ahead to ensure that congressional action fosters strengthening the physician‑patient relationship.
[The statement of Dr. Feder follows:]
Chairman Boustany. Thank you, Dr. Feder. Mr. Taylor, you may proceed.
STATEMENT OF STEVEN TAYLOR, CHIEF EXECUTIVE OFFICER, SJOGREN’S SYNDROME FOUNDATION, BETHESDA, MD
Dr. Taylor. Good afternoon. Thank you, Chairman Boustany and committee members. I am Steve Taylor, and I am the Chief Executive Office of the Sjogren’s Syndrome Foundation, and I thank you for allowing us to testify.
Sjogren’s is one of the country’s most prevalent autoimmune diseases striking as many as 4 million Americans, 90 percent of whom are women. Patients largely depend on the use of over‑the‑counter products to treat their disease and prevent devastating complications. The cost is untenable for patients and their families and with so many products needed for treatment having to go to a physician for a prescription each and every time can present an undue burden on the patient but also on the health care system, the physician and the office staff.
As with most autoimmune diseases, the immune system turns against one’s own body. In Sjogren’s the moisture producing glands are the primary target, this causing many complications, including internal organ involvement of the lungs, kidneys and pancreas, as well as body systems are affected, such as the musculoskeletal, gastrointestinal, vascular, nervous and reproductive systems.
But today I wanted to elaborate on our hallmark symptoms, dry eye and dry mouth, since these lead to a majority of our patients’ over‑the‑counter purchases. Dry eye can cause pain and lead to frequent eye infections and blurred vision. When left untreated dry eye can lead to corneal ulcers and abrasions as well as potential blindness. The few treatments available, moisture drops and ointments, are expensive.
Dry mouth can lead to rampant cavities, chipped and cracked teeth and ultimately loss of teeth. A lack of saliva to protect the lining of the mouth, throat, tongue and digestive tract leads to chronic burning and pain. In addition, dry mouth can cause difficult swallowing and problems with digestion. Over‑the‑counter medications, reflux medications, are taking constantly by our patients and treatments for dry mouth such as saliva substitutes, including gels, sprays and liquids, again are all very expensive.
Today only three FDA approved prescription treatments are available for Sjogren’s patients. Two help to increase saliva and one to help increase tear production. Not everyone can take these medications, and even for those who can they still need to use over‑the‑counter products frequently to avoid pain, infection and other complications. Because there are so many products available on the market used by Sjogren’s patients we actually publish a directory of products, over‑the‑counter products, that are available for our patients to use so they can identify ones that might be helpful to treat their disease.
What is astounding is the cost our patients have to bear when buying over‑the‑counter products. A 2007 patient survey found that the average Sjogren’s patient spends $1,300 a year on over‑the‑counter products to treat their Sjogren’s. For many that dollar figure is actually much higher. We solicited patient stories last week for this hearing and those who responded stated that they spend anywhere from $2,000 to $4,700 a year on medically necessary items.
Chris Albright of Minnesota wrote, my son and I both suffer from severe dry eye, which has impacted our lives immensely. Since 2008 we have paid over $41,000 out‑of‑pocket solely for lubricating eye drops for the two of us.
Rachel Hagan of California wrote, I cannot tell you how many times I have foregone food for myself because I had to pay for over‑the‑counter treatments for the various life altering horrible side effects of having Sjogren’s.
Betty Moss of Georgia wrote, I spend more than $3,000 a year on over‑the‑counter medications. All of these purchases are necessities to just keep my life bearable and that cost represents 10 percent of my income.
And Kelly Nichols, an optometrist from Texas, wrote, as a practitioner and clinician scientist in the dry eye area, I never truly appreciated the impact of Sjogren’s on the quality of life until attending and speaking at the Sjogren’s Syndrome Foundation’s national meeting. Dr. Nichols encourages Congress to recognize that Sjogren’s patients have many expenses, including over‑the‑counter costs, to help alleviate the symptoms of their horrible disease.
The stories are the reason I am here today. While our foundation is working hard to increase awareness and education, we still have a long way to go. Many physicians still do not recognize or understand all of the over‑the‑counter medications that are available and needed to maintain one’s health. And requiring a prescription only puts undue burden on the office and their office staff but also on the patient who already has enough to do to fight their chronic illness.
In closing, the Sjogren’s Syndrome Foundation is glad that patients with diabetes are able to include medically necessary OTC products for their disease in their health savings plans without having to obtain a prescription. But why one single disease? What about the other diseases for which there is a clear medical need? What about the million of Americans who suffer from Sjogren’s? We need your help and recognition that Sjogren’s patients, too, depend on OTC products to treat their disease and that these expenses create a major burden in their lives.
We appreciate your time this afternoon for this very important hearing, and I will be hear for questions if you have any. Thank you very much.
[The statement of Mr. Taylor follows:]
Chairman Boustany. Thank you, Mr. Taylor. Ms. Hatcher, you may proceed.
STATEMENT OF JENNIFER HATCHER, SENIOR VICE PRESIDENT, GOVERNMENT AND PUBLIC AFFAIRS, FOOD MARKETING INSTITUTE, ARLINGTON, VA
Ms. Hatcher. Thank you, Mr. Chairman and members of the subcommittee. I appreciate the opportunity to testify today on behalf of supermarket retailers and wholesalers represented by FMI.
The supermarket industry is committed to providing our customers with a wide range of products, including both food and medical products. The restrictions placed on the purchases of over‑the‑counter medical products with an FSA debit card beginning January 1, 2011 are a real burden for consumers and the retail community and they make no sense.
I will give you a brief history of the issue from our perspective and our members’ investments. In July 2006, the IRS published new guidance that required retailers to develop and implement an information inventory approval system, IIAS, if they wished to continue to be able to accept FSA debit cards for purchases. Under the new IRS requirements a merchant’s point of sale system must be able to verify in realtime electronically that the merchandise being purchased with an FSA card is an eligible medical expense. A massive database of all eligible items had to be designed and built. Each merchant point of sale system had to be engineered to identify and flag all eligible products and decline all ineligible products electronically. The system also had to be able to maintain the data electronically to be produced in the event of an IRS audit. Anyone who has ever had the responsibility for an IT project can understand the complexity of this assignment.
In 2007, FMI joined with a group of stakeholders to develop a nonprofit membership organization to build the database part of this project to ensure consistency across all participants. We did not want customer confusion where an item was determined to be eligible at one store and ineligible at another store down the street. At the time of the founding this group, known as the special interest group for IIAS standards, included about a dozen stakeholders and now its membership includes more than 11,000 companies.
The guidance we had from the IRS regarding the eligibility of certain items was extremely limited. I believe it was only about one page in length. We consulted numerous attorneys and the IRS as often as they were willing and had dozens of conference calls to ensure the database was accurate and comprehensive. The hard work to develop the database of products has been successful, and each month an electronic list by UPC code is updated to identify eligible and ineligible products and a link is emailed to each participating company. The April electronic list included 32,182 eligible items.
In addition to the creation of the eligible product database, FMI members were required to also have the merchant side of the system implemented by January 1, 2008 to ensure that the items could be downloaded and flagged and an unflagged item could not be purchased with an FSA card, which was the IRS’s ultimate concern. This was a tremendous amount of work to accomplish in this timeframe. Customers, merchants and the IRS seemed to be happy with the new system. It was consistent, efficient, accurate and was created without a single taxpayer dollar.
On March 23, 2010, this all changed. In an attempt to raise revenue for the health care law this provision was modified to say that the expenses associated with OTC drugs or medicines will only be considered to be eligible for reimbursement if they are accompanied by a prescription. OTC medical supplies and equipment can continue to be purchased under the existing IIAS system. This practical effect of this change is to require a $130 office visit for a prescription to purchase an $18 package of Claritin. All of the eligible item lists for all merchant locations had to be updated at the busiest time of the year. In total, 16,000 OTC medicines had to be removed from the electronic eligible items list.
Beginning January 1, 2011, the tremendous effort and expense that more than 11,000 companies undertook to comply with the original IRS requirement was negated. The associates in our member companies who invested so much of their time and resources into developing this system were obviously frustrated. Each of our members who responded reported to me more than $100,000 in expenses for the development and implementation of this IIAS system. In government dollars that may not seem like a lot, but with a 1 percent industry profit margin in grocery that equates to more than $10 million in grocery sales just to break even on that expense.
Regardless of how you feel about PPACA, this change is unfair to customers and to retailers and just does not make sense. Bandages and contact solution remain eligible. Claritin and Advil require a prescription.
FMI believes Congress should preserve affordable consumer access to OTC medicines through FSA accounts. We strongly support legislation that many of you have sponsored and cosponsored to make this change.
I will be pleased to answer any questions you have.
[The statement of Ms. Hatcher follows:]
Chairman Boustany. Thank you, Ms. Hatcher. Mr. Van de Water, you may proceed.
STATEMENT OF PAUL N. VAN DE WATER, SENIOR FELLOW, CENTER ON BUDGET AND POLICY PRIORITIES, WASHINGTON, D.C.
Mr. Van de Water. Mr. Chairman, Ranking Member Lewis, members of the subcommittee, I appreciate the invitation to appear before you this afternoon.
The Affordable Care Act includes a number of spending reductions and tax increases designed to assure that expanding health coverage does not drive up the Federal budget deficit. Some of these provisions limit the use of tax‑advantaged accounts to pay for health related expenses. These limitations make sense both as tax policy and as health policy, and repealing any of them would in my view be unwise.
Only a minority of workers benefit from these tax‑advantaged accounts. In 2010 only 39 percent of all workers had any access to Federal spending accounts and only 37 percent of the employees offered an FSA chose to participate. Thus, as a result only about one worker in seven has an FSA, and an even smaller number of workers, rather smaller fraction of workers is enrolled in other tax favored accounts.
Furthermore, people with high incomes benefit disproportionately from these tax‑advantaged accounts because they are in higher tax brackets, tend to consume more health care, and can afford to deposit larger amounts in their accounts. Middle and low‑income people benefit much less, if at all. For example, someone in the 15 percent income tax bracket who contributed the average of $1,420 to an FSA would save $322 in Federal income and payroll taxes. The typical middle income family, however, probably contributes much less than that and therefore receives even smaller tax savings. Low and moderate income households are unlikely to receive any tax savings because they pay little or no income tax.
These modest tax benefits entail relatively large administrative and compliance costs. Employers must manage the accounts themselves or hire a vendor to do so typically at a cost of about $60 annually per participant. In addition, account holders must spend hours complying with onerous recordkeeping requirements to assure that they are using their accounts only for approved items.
FSAs and other tax‑advantaged accounts also encourage the over consumption of health care, which runs directly counter to bipartisan efforts to slow the growth of systemwide health care costs in both public programs and the private sector.
The accounts make people less price sensitive and reduce the effectiveness of cost sharing requirements and controlling health care utilization. Moreover, prior to the restriction on over‑the‑counter items funds in tax‑advantaged accounts could be used to purchase nearly any health care item or service regardless of whether it was medically necessary, cost effective or of meaningful health value.
The staff of the Joint Committee on Taxation included changing the definition of medical expenses for tax‑advantaged accounts in a 2005 report, identifying options for improving tax compliance and reforming tax expenditures. The Joint Committee offered several reasons for using the same definition of medical care both for tax favored accounts and also for itemized deductions.
First, having different definitions for different provisions caused similarly situated individuals to receive disparate tax treatment.
Second, purchases of over‑the‑counter medicines and other items such as pain relievers, cold remedies, and sunscreen constitute routine personal expenses which are generally considered not deserving of a tax subsidy.
Third, the Joint Committee wrote, providing a subsidy for over‑the‑counter medicines may also result in less compliance as it may be more difficult to distinguish products that are medical from those that are not.
These reasons still apply today. I think it is important for us to remember, as was noted in Mr. Melville’s prepared testimony, that flexible spending accounts and other such accounts were generally not available to be used at all for over‑the‑counter products prior to 2003. Thus, this provision that we are talking about is relatively new and as far as I can tell the world, the medical system, the tax system, were operating quite well before 2003 and the notion that the situation is deteriorating substantially as a result of this provision I think is implausible.
Moreover, Mr. Melville’s testimony notes that the average household spends only ‑‑ using an FSA spent only $136 on OTC medicines in 2010. The drop‑off he says was 12 percent. Converted into dollars that is $15. And even if all of that drop‑off were attributable to the provision that we are talking about today, it is truly a de minimis amount for most people. And for people for whom over‑the‑counter expenses represent a large amount then I believe the exception for medical prescription is justified.
Thank you very much, sir.
[The statement of Mr. Van de Water follows:]
Chairman Boustany. Thank you, Mr. Van de Water. Before we proceed with questioning of the witnesses I would like to extend courtesy to the ranking member of this subcommittee, Mr. Lewis, for a statement.
Mr. Lewis. Thank you very much, Mr. Chairman. And Mr. Chairman, I want to apologize to you and to other members of the committee and to my friend and colleague Mr. Becerra for my getting here. I was held up downtown, but I am here.
Mr. Chairman, thank you for holding this hearing today. I agree that this is an important topic for millions of Americans. I understand that Mr. Becerra gave an opening statement for the Democrats, and I thank you, sir. And I thank you for extending me an opportunity, Mr. Chairman, to speak. I also would like to thank the witnesses for their testimony I will read, and I am probably going to have some questions, and I yield back.
Chairman Boustany. I thank the ranking member. And I should say we are glad you are here.
Mr. Lewis. Thank you, sir.
Chairman Boustany. We will now proceed with questions for the witnesses.
Mr. Taylor, I am glad you are here today because you brought a different perspective to all of this. When we talk about over‑the‑counter items, medications, we are typically thinking of aspirin and cold medicine, but you bring to the table representation for a group of people who have very serious chronic conditions, an autoimmune condition, with very specific needs in the over‑the‑counter space which is critical to their health. So I want to thank you for bringing that perspective.
Are there other conditions out there perhaps in the autoimmune world or in other areas that are similar to the patients with Sjogren’s with similar needs? Could you comment on that?
Dr. Taylor. Absolutely. Surely in the autoimmune disease field there are over 80 autoimmune diseases and some of them do have similar conditions and symptoms as Sjogren’s, as well as need over‑the‑counter products for their disease because there isn’t pharmacological methods available for them as well. In addition, diseases such as head and neck radiation patients who had head or neck cancer also use a lot of over‑the‑counter medicines for their dry mouth, which is a serious side effect from having head or neck cancer, in having the treatments as well. So it does extend into other areas besides autoimmune diseases and really does hurt the pocketbook of those patients and their families for sure.
Chairman Boustany. And oftentimes these are specialists who treat these patients, and getting in to see a specialist like a rheumatologist for instance is not always one of those things you can do on the spur of the moment or even within a week or two, it can be difficult to get in to get an appointment, is that true?
Dr. Taylor. That is correct. On average it takes between 3 and 6 months to get an appointment with a rheumatologist unless you go through the emergency room or you have a medical emergency that somehow can get an appointment in to see them. And rheumatologists treat all the dry mouth symptoms for Sjogren’s. And most of the dry eye products are suggested by an optometrist or an ophthalmologist, but typically an ophthalmologist is who is following them, and they have a very heavy workload as well because they are doing surgery and other things as well. So it is very difficult for them to get into their physician’s appointments and then also to be able to get a prescription every time they need to buy an over‑the‑counter product.
Chairman Boustany. I thank you for bringing that perspective.
Mr. Melville, in 2009 President Obama promised not to support any tax increases on families earning under $250,000 a year. And yet looking back at all of this it seems that that is exactly what has happened now. The ban on over‑the‑counter purchases without a prescription is estimated to raise taxes on American families to the tune of about $5 billion. I think we heard that figure mentioned earlier. Can any of the witnesses, starting with you, Mr. Melville, comment on whether families using FSAs, HRAs, HSAs make less or more than $250,000, and let’s talk about the impact of this tax increase on those families.
Mr. Melville. Sure. Thank you for the question. And as I mentioned in my testimony, the average income for an FSA holder is $55,000. And on average they set aside about $1,400 of their income to pay for their medical costs that weren’t covered by reimbursement. And from that perspective we think that FSAs and HSAs provide the right kind of message to consumers that they are responsible for taking care and having skin in the game on their own health care and that they will spend that money responsibly, and particularly because it is their money, they are setting it aside. And as a result of the change in policy someone who had been doing all of the right things, budgeting for their own health care, seeking an OTC treatment first before perhaps going to see a physician and taking care of it and saving the health care system money, they are doing all the right things, and the effect of this policy is to penalize them by saying you can no longer use your tax‑advantaged card, and if you want to use your FSA you have to go to a doctor and get a prescription for a product that doesn’t require a prescription.
Chairman Boustany. So is this going to add cost overall, this requirement, to go in and get a prescription each time you need to get over‑the‑counter type medications?
Mr. Melville. It does not increase the price of the product, it increases the cost to the consumer, because before they were able to use tax‑advantaged dollars to purchase these products, now they are using after tax dollars, and you are treating OTC medicines differently than other medicines, prescription medicines. And it really doesn’t make a lot of health policy sense because many of these medicines that are now available OTC were previously available by prescription. It is simply that the product and the experience with the product was such that the FDA and the sponsor and manufacturer of the product were able to show that a consumer could use this product safely without the intervention of physicians. So something that was previously available only by prescription and you could use your FSA, if it gets switched to OTC, that same product, you can no longer use your FSA.
Chairman Boustany. I think we have seen that with peptic ulcer disease. Some of the earlier treatments required prescriptions and now they are over‑the‑counter as things have evolved. And the ability to get these things over‑the‑counter probably saves time for the consumer. They don’t have to miss work to go to see a doctor and those kinds of things.
Mr. Van de Water, did you want to make a comment.
Mr. Van de Water. Yes, Mr. Chairman. Again, based on the figure in Mr. Melville’s testimony the average family with an FSA is spending about $136 a year on OTC medications. That means that the tax advantage to that family is on the order of $30 to $35 a year on it if they could use the FSA to purchase these over‑the‑counter items. With numbers like that there are going to be very few families for whom it would be advantageous to actually spend the money to go to the doctor, even with a modest copayment, to look for a prescription to purchase aspirin or a cold medicine. And for the people with very high over‑the‑counter spending, such as those whom Mr. Taylor has been talking about, Mr. Taylor’s own organization on their website recommends that their members talk to their physician about all of the over‑the‑counter medications they are taking anyway and if these are chronic concerns the prescription could be obtained in the course of a regular visit.
Chairman Boustany. Dr. Feder, do you want to give a physician’s perspective on all that?
Dr. Feder. This restriction on patients requiring prescriptions for over‑the‑counter drugs, it places a tremendous burden on the family doc. I can tell you that from my practice. And my colleagues will tell you the same thing. You know, right now patients can come in with a list of 15 or 20 over‑the‑counter medicines, and if we see that some of them aren’t appropriate to be taken together the patient reacts unfavorably to that. It puts the provider in a very uncomfortable position. Also, the patient will, in my practice, and I think in most practices, will have to pay for an office visit in terms of the copay.
Chairman Boustany. Thank you. I will now yield to Ranking Member Lewis for questions.
Mr. Lewis. Mr. Van de Water, in your written statement you stated that 39 percent of all workers have access to flexible spending accounts. About how many workers is that?
Mr. Van de Water. Well, we currently have about 142 million workers, so applying that percentage you get about 55 million with access to flexible spending accounts.
Mr. Lewis. Well, that is access, but not use, right?
Mr. Van de Water. Correct.
Mr. Lewis. So does the number of people who have access in total to include workers and their family members?
Mr. Van de Water. Well, we don’t have good data on that. Of course some of the work ‑‑ in some cases some of those 55 million workers could be in the same household as another worker covered by an FSA, in other cases other members of the household might not have access to an FSA through their own employment. So we can’t be sure. But one would guess that it could be on the order of one and a half to two times the 55 million number of workers covered.
Mr. Lewis. Thank you. Dr. Feder, you testified a few moments ago in responding to the chairman’s questions that when people come in asking for over‑the‑counter prescriptions they place a burden on you and other physicians. What can be done to lessen that burden?
Dr. Feder. The patients, the ones that I have talked to about this, they are upset that they have to come in in the first place and ask for a prescription for an over‑the‑counter drug because of the cost of their copay or the cost of the visit. And so right away their mindset is somewhat uncooperative with my mindset. And so in order to try to smooth that rift over, you know, I will give them the prescription generally speaking unless I think it is a problem for their health. But the burden on the physician is I could be seeing, you know, some very ill patients, elderly patients that I see that take me lots of time to see, and instead I am spending my time on these patients writing prescriptions for over‑the‑counter drugs.
Mr. Lewis. Now, most of the people that come in, are they sick of some symptoms or are they just ‑‑ maybe they saw a TV ad or heard something on the radio and said this is good for me and I just need it, I want it, Doctor, please write this prescription?
Dr. Feder. I think there is two parts to that question, sir. The first part, most of the prescriptions OTC that I give out are for colds, they would be for allergies. For example, the patient in the spring involves having bad allergy symptoms so they need a prescription for Claritin or Allegra or Zyrtec, something like that. And then there are those patients who come in from direct consumer advertising on television and radio that hear about something. Let me just use the example of testosterone because low T has become the big key word today. But that is a prescription item, so that is treated differently. But the over‑the‑counter drugs ‑‑ oh, and other conditions would be pain. They might come in to ask for a prescription for ibuprofen or Aleve or something like that
Mr. Lewis. Thank you very much. Thank you. Mr. Chairman, I yield back.
Chairman Boustany. Mrs. Black, you are recognized.
Mrs. Black. Thank you, Mr. Chairman. And as a health care professional I certainly can see a number of reasons here why this is not a very good idea. First of all, we have got limited dollars that can be spent in health care, to begin with. We already know that it is an area where there is a rising cost to both the patient, the consumer and then also to the physicians in liability. And so as I am sitting here listening to the testimony I was just writing down some of the areas where I see this as really being a negative rather than a positive as we look at trying to get a lower cost of care and also making sure that it is patient centered care. And so I wrote these things down, and I would like any one of the panelists to add to this or correct me in what I am seeing here as being the real problems with this change.
First is the cost of the visit. We all know that with the limited dollars, especially in those families that only have a limited number of dollars to spend on their health care, that the cost of just going to see a physician to get that prescription is going to be an added cost to their already difficulty in paying for the cost of health care.
Number two is something that I don’t know that was really mentioned here, in part of my having to slip it in now, but I am not sure that we really mentioned about the time away from the workplace that someone is going to take. I know having been a mother and also a working professional, and if I had to go to the doctors every time I needed something for my children’s cough or sniffles or whatever, it is going to be time away from the workplace and we will see that impacting the families in particular.
Number three, there is already a physician shortage. 50 percent of my district is rural. We are having a hard enough time attracting physicians. And if they are using their time to write prescriptions rather than seeing patients that really need to be seen, this is really a problem.
Number four is the liability. And Dr. Feder, I don’t know that I really thought about that a whole lot until you mentioned it because now you really can’t just say, oh, I will just write that prescription because you have a runny nose or you have an allergy to a spring fever or whatever, you are really going to have to do a full exam. Because if you just write a prescription and somebody has an adverse effect it is going to come back on you. Liability is already high enough and what we are doing is we are adding on top of that where it is going to take your time again and also result in a possible liability issue.
And then the one that I don’t know that we have mentioned here as well is patient choice, having enough confidence that people can understand how to take care of some of their own health care needs without running to a health care professional. And I think that that is a sad thing that we say that these are drugs that have been approved by FDA to be over‑the‑counter when we should be giving our patients enough credibility to say that they can read a box, they can understand an over‑the‑counter medication that has been approved by FDA.
So I have chronicled five things here that I think are going to drive up the cost of care, as well not move us in the position of having more patient centered care and allowing people to be more involved in their own care. So any one of you all, can you add to that or do you want to correct something that I said? Mr. Melville, let me start with you.
Mr. Melville. Well, I think you really laid out the issue at hand here, which is this creates behavior that reduces access and increases cost. I think everyone in this room on the committee and here in the audience is committed to looking for solutions that reduce health care costs and that increase access to health care. It is something our country is struggling with. And quite frankly, this policy takes us in the wrong direction. Because as Dr. Feder mentioned, the consumer has to pay a copay, but his insurer is paying the balance of that doctor’s visit. The copay may be $10 or $20 or $30, the system is paying the $100 or whatever the balance is.
And in addition to that, as you mentioned, the time out of the office as well. Caregiver moms miss twice as many days for taking care of their children than they do for their own health care. And the access 24/7 to an OTC medicine allows parents to treat their children and often allow their children to go to school, allow the parent to go to work. And the cost associated with absence because of these illnesses is tremendous. And it was never really quantified and I am sure was not quantified when the CBO looked at the savings as a result of this change in law.
Mrs. Black. I think I am going to run out of time here. I see it clicking. I have got less than 10 seconds left. So if anyone does have additional remarks or comments pertaining to what I said I would ask that you would give it to us in writing.
Thank you very much.
Chairman Boustany. Mr. Becerra, you are recognized.
Mr. Becerra. Thank you, Mr. Chairman. And thank you all for your testimony. I just want to make sure I understand what we are talking about. We are talking about over‑the‑counter medicines. So to be clear, over‑the‑counter medicines are medicines that you or I or anyone in America, any consumer, could purchase right now by just walking into the pharmacy and plucking it from the counter. This is not a medication that requires a doctor’s prescription. So we are talking about your run of the mill flu medication, it could be aspirin or something for a migraine, it could be the alcohol or peroxide, hydrogen peroxide you might use to help heal a wound, things that you can get without having to go to the doctor to get a prescription. Now, because of the law the way it is if you don’t a prescription, you buy that medicine, you can’t get a tax write‑off for it. If you buy that cold medication with a prescription and buy it off the counter, not going to a pharmacist but right off of the counter, you can write it off from your taxes. And so what we are talking about is the fact that there are Americans who want to take advantage of the fact that by purchasing medicines that any American can purchase that they can get a tax write‑off, they can reduce their taxes. And so it is an incentive to call Dr. Feder or any other doctor and say, Dr. Feder, I have got a cold, it is really bad, could you give me a prescription so I can go buy that cold medication. And the inconvenience and so forth that you have explained I think arises from all of that.
This is the concern I have. I can understand why most Americans want to reduce their cost of health care because health care is extremely expensive. But have any of you figured out how we would cover the $7 billion cost of eliminating that provision? Because by giving that select group of Americans who has FSAs or HRAs or HSAs, these flexible spending accounts, these different type of accounts, we are giving a select group of Americans a chance to deduct the cost of that flu medicine from their taxes where the majority of Americans buy the same medicine, buy the same pills but don’t get to deduct those costs from their taxes. And so the cost to taxpayers who don’t have FSAs or HRAs or HSAs are passed on to the majority of Americans ‑‑ yeah, the cost of those deductions are passed on to those who don’t have these flexible savings accounts. And so if we want to return to the days when a certain segment, the minority of Americans could deduct the cost of that flu medicine from their taxes we have to come up with $7 billion in offsets, because that is what the cost will be over 10 years. Someone pays for that. Other taxpayers have to pay for that, either paying more taxes elsewhere or we deficit spend and borrow the money from China.
So have any of you thought of the solution, because we talked about solutions, what the solution is? How do we pay for the $7 billion cost of reinstituting a program that allowed a minority of Americans to deduct the cost of their over‑the‑counter medicines from their taxes, which the majority of Americans cannot do?
If you have it paid for, I would love to hear it. Otherwise that is the dilemma we have. I would love to do what you want to do, because I would love to help those Americans, the minority of Americans who can deduct the cost of their over‑the‑counter medicines from their taxes, but I have to pay for it, I have to find a way to pay for it. And right now we are being told that we have to cut Medicare, we are being told we have to cut Meals on Wheels for seniors, we have to cut funding for our schools because we are in deficit. And on health care we are told, and Dr. Feder probably knows this very well, we have got to do something about this sustainable growth rate reimbursement for physicians and other providers which is not keeping pace with the cost of inflation for doctors to be able to provide health care. And that is going to cost a ton of money.
Dr. Feder, I don’t know if you would rather we cover this but not take care of the SGR doc fix. And so it is easier said than done, and given that these provisions that you would like to see in place are a convenience and help a minority of Americans, and by some estimates the FSAs impact about one in seven workers which means they touch the lives of about 30 million Americans, that is 1/10th, 10 percent of Americans participate in FSAs or are touched by FSAs, that means 90 percent of Americans go to the same pharmacies, purchase those same medicines and they can’t deduct them from their taxes. And so it would be helpful if when you come here to tell us to really rethink and restore that program if you help us figure out how we come up with the $7 billion it will cost to reinstitute the program.
Chairman Boustany. I would remind my friend that he just made a good case for the fact that we still have a massive health care problem in the country and it has not been adequately addressed by the passage of a health care law and so we have much more work to do. And I think any of those things that could empower individuals and families to take more control of their health care destiny is probably a good thing in the long run.
Mr. Becerra. But Mr. Chairman, on that point, a few years ago some years back there was no such thing as deducting the cost of your over‑the‑counter medicine. It came into play as a result of the creation of the FSAs and so forth. And I think it encourages folks to make sure that they take the medicines they need. But this is the time of austerity and I think, Mr. Chairman, we have to figure out what are the most important things. Is having a consumer go to Dr. Feder and say, Dr. Feder, I need to see you because I need you to give me a prescription so I can buy that cold medicine that I can buy over the counter on my own without a prescription ‑‑
Chairman Boustany. We will continue this debate.
Mr. Becerra. That is the question, that is the question.
Chairman Boustany. Ms. Jenkins, you are now recognized.
Ms. Jenkins. Well, I want to thank the chairman again for holding this hearing and for all of you for testifying today. We have got great bipartisan support in the House and even on this Ways and Means Committee to repeal this provision. And I hope that hearing some of the facts today will encourage even more of our colleagues to support removing this burden on consumers.
Mr. Chairman, I would ask unanimous consent to enter a letter of support into the record. It is from the Health Choices Coalition and it is simply supporting the repeal of this prescription requirement from the health care law.
Chairman Boustany. Without objection.
[The letter follows: The Honorable Lynn Jenkins]
Ms. Jenkins. One of my constituents back home, Donna, in Fort Scott, Kansas, wrote me at the beginning of this Congress, and this is what she said: My husband and I try to stay very healthy and really enjoy the flexibility of the health savings account as it once was. It was very convenient to be able to buy over‑the‑counter products to manage our own health care. Americans should choose a healthier lifestyle which could cut down on costs tremendously. I do not know why anybody wants the government to be so involved in the management of the money we have worked so hard to earn. Please work hard to get this part of the health care act repealed.
And I struggled to provide a rational response to this constituent as to why this prescription requirement was even included in the President’s health care law in the first place. It doesn’t provide better health care for consumers and I can’t figure out how it would lead to creating the 4 million jobs that then Speaker Pelosi promised the bill would create. To me the only logical response was that it was a simple line item that provided revenue to help pay for the massive overhaul, which is why we have introduced legislation to repeal this provision.
Ms. Hatcher, you mentioned in your testimony all the work your organization did to comply with the original 2008 IRS guidelines. Then we passed the health care law and you all get new guidance just weeks before you must comply with these new prescription requirements. You mention a company spent about $100,000 to comply with this new provision from the health care law.
Do you know what the average salary is for a full‑time employee in your member companies?
Ms. Hatcher. It would depend upon the position. There would be a wide variation between the various positions in the store, but it would be well below that expenditure.
Ms. Jenkins. So you think you could hire at least a couple full‑time employees for the cost of just getting the system set up?
Ms. Hatcher. Certainly.
Ms. Jenkins. What concerns me most about this investment you all had to make was that it may have come at the expense of your members creating new jobs at a time when that was what we need the most. Could you estimate for me or have you received any anecdotal feedback on how this new requirement is hindering job growth for your members?
Ms. Hatcher. Well, certainly, as you mentioned, the expenditures that were put into the system, and there are ongoing expenditures that it didn’t really factor in. Just to add to Congresswoman Black’s list, one additional expenditure is the most expensive position and the hardest to fill in the supermarket environment is the pharmacist position, and now we have to have a pharmacist involved in the sale of every OTC product that has a prescription, and it has taken him away from really counseling sick patients, so certainly I would add that to the list of those expenses.
Ms. Jenkins. Okay, thank you. Mr. Melville, you mention a study in your testimony, specifically the fact that every dollar spent by consumers on OTC meds saves six to seven dollars for the U.S. health care system as a whole. Can you elaborate a little more on some of the findings of that study?
Mr. Melville. Sure, thank you. The study looked at a hypothetical world that said if OTC medicines were not available, what would consumers do, and so they polled 3,500 consumers and got a direction from them that many of them would go to see a doctor, many of them would go to emergency room, many of them would seek a more expensive prescription medicine, all behaviors that add costs to the health care system, not reduce costs, and by looking at that and extrapolating, it came up to about $102 billion in current value today because of OTCs. OTCs keep consumers or patients out of a medical office when they don’t need to be there. It allows them to purchase a product on their own without the involvement of a pharmacist per se, no dispensing fee. It is cost‑effective health care. It is not appropriate in every situation, absolutely not, but where it is appropriate, it is cost‑effective and it should be encouraged, and this study shows the benefits of OTC medicines. It makes it difficult to understand how this provision could be scored at saving money for the health care system when it is causing people to go see doctors.
Ms. Jenkins. Thank you. Mr. Chairman, I yield back.
Chairman Boustany. Mr. Marchant, you are recognized.
Mr. Marchant. Thank you, Mr. Chairman. In 2009 the President told the Nation that he was not going to be in favor of raising taxes on any family that made under $250,000, yet looking at the rules of Obamacare, it seems that exactly the opposite will take place. The ban on over‑the‑counter purchases without a prescription is estimated to raise taxes on families of about $5 billion a year.
Can any of the witnesses each comment on the families that you have experience with that you see are affected by this law? Do they fall in the under $250,000 category or do they fall above the $250,000 category?
Mr. Melville. Well, as I cited earlier, the most recent data we were able to obtain showed that the average FSA participant earned $55,000 a year. As a result of this provision, if they had an FSA account before the provision took effect, their cost for OTC medicines went up 10 to 35 percent after the provision took effect.
Mr. Marchant. So that would be a tax increase?
Mr. Melville. It is certainly a cost increase to the consumer.
Mr. Marchant. Mr. Feder, Dr. Feder.
Dr. Feder. I can tell you that, you know, my patients, I practice in the great State of Kansas, and I practice in a fairly affluent county, but I guarantee you these patients make far less than $250,000 a year, and we see indigent patients, we see patients that don’t have insurance, we give out samples to patients, and we still cannot keep up with the complaints about they can’t afford this and they can’t afford that, and this is just one more area that I think we can empower and help our patients in that they don’t have to come to the office and spend money to see me to write them a prescription that they can get over the counter.
Mr. Marchant. Thank you. Mr. Taylor.
Mr. Taylor. Thank you. Well, Sjogren’s affects 1 percent of the U.S. population, so surely the majority is going to be earners under $250,000, affects mostly women, but it surely does affect people that don’t make $250,000, and the patient choice is so important for our patients, but to understand Sjogren’s, our patients use between 10 and 17 products daily for their disease from dry skin lotions all the way up through dry eye options to dry mouth options, et cetera. And so surely with the prescription issue, it would fill the doctors’ offices with having them write prescriptions, and it is causing problems for our rheumatologists, our ophthalmologists to write those prescriptions for our patients.
Mr. Marchant. Ms. Hatcher.
Ms. Hatcher. I don’t have any specific data, but where we have seen the use of FSA cards, it is throughout all income levels in a community, it is not limited to upper income levels, it is throughout all income levels.
Mr. Marchant. Yes, sir?
Mr. Van de Water. Mr. Marchant, it is important to look at not just the tax effect of this particular provision, but of the entire legislation of which it was a part. As Ms. Jenkins correctly noted, the purpose of this provision is not just to raise revenues for the sake of raising revenues but to help finance the major expansion of health coverage that was provided by the Affordable Care Act. Indeed, using the figures and the testimony we heard earlier, there are people, you know, the average person benefiting from an FSA will lose perhaps 30 to 40 dollars a year on account of this limitation on over‑the‑counter spending. However, the Affordable Care Act is also extending health coverage to 33 million Americans who haven’t had it and providing tax credits to low ‑‑ which are focused on low‑ and moderate‑income Americans. So it seems to me, and I can say that as a person who has this year for the first time a flexible spending account and who earns less than $250,000 a year, I for one am quite happy to pay an extra $30 a year to help provide health coverage to the less fortunate of our citizens who otherwise wouldn’t have it.
Mr. Marchant. So in your view it is ‑‑ it was basically a cost shifting from one group of people to another group of people?
Mr. Van de Water. It is not a cost shift. It is a way to raise revenue to pay for a very important program.
Mr. Marchant. That would be what we define as a cost shift. Thank you very much.
Mr. Taylor. Mr. Marchant, may I please add, we have all these new people going to be going on the health care rolls, and we won’t have time to see them in the physicians’ offices if people that do have FSAs are taking up time to get prescriptions, and that is the biggest challenge that we have in the health care system. There is only 39 percent on FSAs, but they will be taking up time, important time for other people that could get in, need to get in to see their doctors, which is very important to remember as well.
Mr. Marchant. Thank you, Mr. Taylor.
Chairman Boustany. Mr. Reed, you are recognized.
Mr. Reed. Thank you so much, Mr. Chairman. Mr. Van de Water, I do appreciate your generosity in giving your money to a segment of the economy, of the population for paying for their health care when they need it, but would you agree that some people may not want to be that generous or that some people feel that the money in their FSA accounts is the money that they earned and it is their money, and they should have the choice whether or not to pay for someone else’s health care in America?
Mr. Van de Water. Whether or not to have an FSA is itself a choice. As I said, up to this year I had not exercised an FSA.
Mr. Reed. I think, sir, what you said is you appreciated the fact that you had an opportunity because of what you make under your FSA to pay for those people that may be in a situation that can’t get health insurance, and I appreciate your generosity. But what my concern is is why in Washington, D.C. do we have an attitude that ‑‑ you may feel that way, but there is millions of people I am sure that are out there that don’t feel like you, and we are directing them from Washington, D.C. under this provision to say, well, so sorry, so sad, we are going to tell you we are going to take your money.
Would you agree your money in your FSA is your money or is it the government’s money? Whose money is it in the FSA? Your FSA in your account, whose money is it? Is it the government’s money or is it your money? Did you earn that money?
Mr. Van de Water. The tax benefit is ‑‑
Mr. Reed. No, no, the money in the FSA, you earned it, right?
Mr. Van de Water. We are not talking, sir, about the money in the FSA per se. My money is my money.
Mr. Reed. No, I am talking about the money ‑‑
Mr. Van de Water. We are talking about whether I should get a tax benefit for buying a cold remedy.
Mr. Reed. But that is your money that you earned in your FSA. Does anybody else have an FSA on the panel? Okay. Do you feel that is the government’s money or is your money?
Mr. Taylor. It is my money that went in there.
Mr. Reed. Yeah. So do you have any problem with us coming in and using that FSA money for something else? Do you appreciate the fact that I, here in Washington, D.C., under the Affordable Care Act am directing that I am going to take that money and put it somewhere else? I mean, that is what I am hearing from the testimony from the panel today. Am I missing something?
Mr. Van de Water. Yes, that is a mischaracterization of my remarks, sir. I can use my money to buy over‑the‑counter drugs at any time. At issue is the amount of the tax subsidy that I should get, and the tax subsidy, which is what we are talking about, is not my money.
Mr. Reed. That $30 is not your money?
Mr. Van de Water. I have no right, God‑given right to a tax subsidy for buying cold medicine.
Mr. Reed. Am I missing something? Isn’t that $30 part of the FSA money that you are ‑‑ you essentially earned, you are just paying the $30 as a tax on the money you earned even though you ‑‑ because you are getting the tax benefit from the transaction, you are paying the $30 at the end of the day.
I guess my point, I am just trying to stress the point that there is an attitude here in Washington as a new member that I see that is clearly on display here in that the FSA tax benefit is looked at as if that is Washington’s money, not the individual who earned its money, and I have a fundamental disagreement, and I believe you can tell where I come down on that side of the equation.
If I could, I just want to get into a little bit ‑‑ Mr. Melville, can you give me any medical justification as to why this policy was enacted?
Mr. Melville. There is no medical justification that I am aware of. These are often referred to not only as over‑the‑counter drugs but nonprescription drugs. By their very nature, they don’t require a prescription, so the tax policy is inconsistent with the medical treatment of that product.
Mr. Reed. Would anybody disagree with that assessment on the issue?
Mr. Reed. Now before this provision was put in the Affordable Care Act, was there any consumer advocates or any professional doctors or hospital organizations that were advocating or suggesting using FSAs and HSAs to purchase OTC medication that was harming patients or represented bad health policy? Was there anybody during that debate raising those concerns? Anybody? Yes, no?
Mr. Melville. No.
Mr. Reed. Well, with that, I yield back, Mr. Chairman. I clearly see what the policy was for. It clearly was a revenue ‑‑ I do appreciate your candor on the statement you made, Mr. Van de Water, for the record, that it was clearly a revenue source to pay for the Affordable Care Act, and I do appreciate that candor.
With that, Mr. Chairman, I yield back. Thank you.
Chairman Boustany. I thank the gentleman. Mr. Paulsen, you are recognized.
Mr. Paulsen. Thank you, Mr. Chairman. Let me just thank you also for holding this important hearing today. It is something I have certainly taken an interest in personally as well as Congresswoman Jenkins. In fact, her and I today have an opinion piece that has been published in the local Roll Call subscription newspaper, so without ‑‑ I ask unanimous consent to submit that for the record if we could, Mr. Chairman.
Chairman Boustany. Without objection.
[The article follows: The Honorable Erik Paulsen]
Mr. Paulsen. Thank you. Several members on the committee actually have introduced specific legislation to target fixing this onerous provision for over‑the‑counter medication. So in addition to Ms. Jenkins’ bill, I have got the legislation that was mentioned in the testimony, there is 128 cosponsors, Mr. Reichert has a legislation, there is bipartisan support for this. You know, it is really no wonder when you come up with these types of provisions why the President’s new health care law still remains so unpopular. I mean, I know it was targeted mostly towards access, but it doesn’t address the cost side of the equation at all, and certainly health care savings accounts, flexible savings accounts, and then these over‑the‑counter medications that have grown more popular because they have gone through FDA clearance, they become more readily available, it only makes sense they are going to be more widely used as an opportunity to reduce costs in the healthcare system. We have actually made this new health care law more and more expensive ironically. So it has gone from like $900 billion to like $1.7 trillion, so it has, like, doubled in cost, and so it is no wonder that the law itself is so unpopular.
But what I think is really interesting, though, is that you have got 33 million Americans that are in families that use these flexible spending accounts. They are offered by 29 percent of small businesses and they are offered by 85 percent of large employers as well. So you have got employers that are really pushing out to their employees, hey, take advantage of these accounts because it allows you to use your own health care dollars for your own health care needs, and at the same time Congress comes in and pulls the rug out from under them. I get these calls from these suburban mothers who are really just flabbergasted and ticked off that all of a sudden they can’t go get allergy medication for their children unless they go to a doctor for that prescription. So you not only have to have the copay, but then you do have the insurance cost that gets paid, that gets spread out among everybody, so then you are increasing health care costs for everybody. It is going in the opposite direction of the intended effort of health care reform. So the consumers don’t like it, the doctors don’t like it, and the employers don’t like it.
Let me just ask this question because this has not come up in discussion today, but another restriction that is actually in the new health care law is also a restriction on the cap of the amount of money that can be put into these accounts each and every year. As we know, some health care procedures are fairly expensive. I will give you one example in particular, but you have got a $2,500 cap essentially now that has been placed on these accounts, and that starts in January 1st of this next year, so we are going to hear a lot more from consumers that are going to be impacted by this new cap, and I am concerned we are going to see similar problems, so you have got millions of consumers that use these funds, their own health care dollars with more restrictions. How will this ‑‑ as an example, I will give you an example of how this might restrict dental care. So if you have got a consumer that is now going to be able to ‑‑ say if they want to use an oral health decision for dental care, and they have got no money really to cover their out‑of‑pocket expenses, so they go to, say, a surgical dental implant for like a jaw bone implant in Dayton, Minnesota. According to fairhealthconsumer.org, this procedure might cost like $1,221, so a significant amount of money. That is a cost that the consumer is going to directly have to pay after their insurance coverage. Then you add a ceramic retainer, you know, for your child, of course, you are at $900, so you have almost used up the whole cap right there.
Let me just ask this, Mr. Melville or any others that might want to comment, after you have had several of these procedures, you can use up and burn through your whole account right there. You know, in general, I mean, what is going to be the impact on the consumer with that type of a provision as well? Is that moving us in the wrong direction, Mr. Melville?
Mr. Melville. Well, sir, I have a 14‑year‑old daughter who is getting braces next year, so I will be able to personally experience that cap in my situation, but, you know, I can’t speak broadly towards how FSAs are utilized broadly for health care. I can say that the OTC spend is usually a very small part of the overall amount that a consumer will spend out of their FSA, but it is a significant amount, and I think I have heard today some comments saying it is not much. It is a lot for certain people who perhaps aren’t making a lot of money and may have a disproportionate need. Maybe they do take an allergy medicine 12 months a year along with their children, and you add all of that up, 10 to 35 percent of that allergy medicine over the course of the year is real money, and I think it is not fair to characterize it as modest or insignificant. It is really significant to a lot of people.
Mr. Paulsen. Mr. Taylor ‑‑ or, Mr. Feder, from a physician’s perspective on the cap, I mean, another provision that we are going to hear about from consumers down the road here.
Dr. Feder. Yeah, I think so. I have patients that I do a physical exam on, they need a colonoscopy, a stress test, they need some other procedures, it can run up into the thousands of dollars, and sometimes they will bundle all these to do in one year because they have got the money to do it, and I see that, you know, that is not unusual to see that. They may be looking at an elective surgery, cataracts, although that is covered, but still there is going to be out‑of‑pocket expense. Maybe they want lasik surgery, there is just a host of elective procedures that are very expensive, and a cap obviously will affect that.
Mr. Taylor. And Sjogren’s patients on average spend over $1,500 a year on dental work for their dental issues that they have, so it is very expensive as well.
Mr. Paulsen. Thank you, Mr. Chairman.
Chairman Boustany. I thank the gentleman. Yes?
Mr. Lewis. Could I just ask one last question, Mr. Chairman?
Chairman Boustany. Yes.
Mr. Lewis. Can I do somewhat of a poll? How many of you favor or see health care reform as good in itself, that it is affordable, accessible when we have more than 50 million of our citizens without any health insurance, they cannot afford to see a doctor, many never see a doctor because they cannot afford it. I would just like to get ‑‑ I know you are very smart, you have been working in this area, some of you, for quite a while. Dr. Feder?
Dr. Feder. I can address that, if I might. Yes, sir, I represent the American Osteopathic Association, and we are on record as supporting the Affordable Care Act. However, we do feel with any law there is room for improvement and revision, and I support that position.
Mr. Lewis. Others?
Mr. Taylor. Well, the Sjogren’s Syndrome Foundation is on the record as well of supporting the Affordable Care Act. I think the challenge is in any disease ‑‑ I have worked in nonprofit health care my entire career, American Heart Association and now Sjogren’s Syndrome Foundation ‑‑ is access to health care and we need to do something about it, and this will definitely change that. The challenge with what we are talking about today is we will be filling those doctors’ waiting rooms with people just needing prescriptions for their FSAs instead of getting those new people that finally have insurance into their doctors. And there is even statistics on colonoscopies. People that have higher incomes tend to go for more colonoscopies and fill colonoscopy rooms, when people that actually have symptoms that need the colonoscopies can’t get in. The same thing will happen with rheumatologists and opthalmologists, if Sjogren’s patients start filling, and they have been, filling waiting rooms trying to get prescriptions, taking away from people that really need those appointments because they have a real medical need for them just to get a prescription for eye drops or saliva substitutes or et cetera. Access to care is wonderful, but we need to make room for those people to get into the doctors’ offices as well.
Mr. Lewis. Thank you. Ms. Hatcher, do you have a point of view here?
Ms. Hatcher. Sure. I mean, just in general in terms of affordable care, obviously there is some work that needs to be done. This particular provision we have been against all along. We did a lot of work to put an advance system in place, and we just felt like the rug was taken out from underneath us. When the IRS asks you to do something, you usually jump and try to do it, and we did, and then we feel like, you know, all of our work was kind of useless, and so I think that is the frustration from our member standpoint is more of the investment they put into this to try to make this work and make the system work and then have it taken away.
Mr. Van de Water. Mr. Lewis, I think that the Affordable Care Act represents a wonderful achievement on the road to reducing the number of people in this country without coverage. As I said before, another one of the Act’s remarkable achievements is that it does include provisions to pay for the health care expansion. Unlike, for example, the expansion of, you know, the provision of Medicare drug coverage back in, you know, the previous decade, which was not fully paid for, the Affordable Care Act by CBO’s estimation will actually modestly reduce the deficit because it does include other spending reductions and tax changes to pay for it. This provision is clearly one of the less popular provisions, but I do think that it has a strong policy justification, as I have explained earlier.
Mr. Lewis. Thank you.
Mr. Melville. Mr. Lewis, my association did not take a position for or against the Affordable Care Act. We certainly support the goals of increasing access and reducing cost. We would agree with Dr. Feder that the law itself can be tweaked and improved, and this is an area that we think can be improved because with the expansion of coverage, it will put more pressure on physicians, and the last thing physicians need would be people coming in asking for prescriptions for medicines that don’t require one.
Mr. Lewis. Thank you. Thank you, Mr. Chairman.
Chairman Boustany. I thank the ranking member. I would just conclude by saying that this hearing was focused on this particular provision, first of all, a provision that is going to add cost to the health care system, and it certainly has a hassle factor associated with it, as we have heard from many of you.
On the broader picture of the health care law that passed, we know obviously, yes, there was increased coverage, but does coverage really mean real high quality access when you consider that a significant amount of that expanded coverage is in the form of Medicaid where we have doctor shortages and physicians who currently are not seeing Medicaid patients or trying to markedly curtail their Medicaid exposure because of the very poor reimbursement that doesn’t meet costs. We are going to be simply pushing all of these individuals into the emergency room, and so while you can talk about expanded coverage, does it mean high quality access? And at the same time we do know that costs are going up and accelerating at a rate, according to the CBO, even faster than if we had done nothing.
So there are significant problems remaining, and while I think this was a very valuable hearing to focus on this one provision which is causing a lot of consternation on the part of families across this country and adding to cost, we have clearly much more work to do in health care, and so with that I want to thank the witnesses for being here today and for your testimony. I want to remind you that members may have some additional questions they may submit in writing to you, and those questions and your answers would be made part of the official record. So, again, thank you for being here today, and that concludes our hearing.
[Whereupon, at 4:00 p.m., the subcommittee was adjourned.]
Member Submissions For The Record