Health care HSA changes result in higher taxes for all

So much for the promise that Americans making $200,000 or less would not pay one single dime in extra taxes. Just another promise that reached it’s expiration date, but at this point can we just call every Obama promise a lie?

In November, I wrote about proposed Flexible Savings Account (FSA) changes in the House health care legislation. Those terrible changes are now law (Sec. 9005 of H.R. 3590). Today, let’s take a look at the Health Savings Account (HSA) changes and the new tax on drug companies.

HSAs – before ObamaCare – allowed individuals to put aside money to pay for qualified medical expenses – including over-the-counter (OTC) medications – on a tax free basis. Frequently, companies match or at least contribute to an employee’s HSA. (Unlike FSAs, you are able to keep the money year to year and even invest the money!)

This benefit has changed. (Sec. 9003 of H.R. 3590)

When this portion of the legislation becomes law (early 2011), you will no longer be able to pay for OTC medications with HSA dollars. Since HSA money was directed into your account tax free, this means you will soon be paying 25 to 40 percent* more for Ibuprofen, Tylenol, Excedrin, Sudafed, TheraFlu, Robitussin, Sinutab, Actifed, Tavist D, Vicks 44M, Dayquil, Nyquil, Tums, Alka-Seltzer, Neosporin, Pepto-Bismol, BenGay and your Breathe Right strips (among many others) if you pay for these OTC items using HSA dollars.

The government gave us this tax break more than six years ago, and they took it away. That equals a tax hike in my book, and it’s a direct tax hike for me … we have an HSA and use the debit card to pay for some of the items listed above. We don’t make anywhere near $250,000, so Obama lied, my taxes are going up.

John Berlau at Big Government notes…

OTC drugs are much cheaper those available for prescription, but they could now be more expensive to individual consumers given that prescription drugs would still be eligible for favored treatment in the tax plans, and that insurance companies would be mandated to cover many of them. Consequently, any time a consumer has the slightest headache, the financial incentive would often be to see a doctor and get a prescription rather than go to the store and get medicine off the shelf.

Although technically true, I’m not sure Berlau’s example will hold true in the real world. Consumers are still going to have Advil in their medicine cabinet, they will just be mad they have to pay more for it.

What other changes will increase the cost of medications?

Gee, how about an annual fee of $2.3 billion (Sec. 9008 of H.R. 3590) that must be paid (in total) by branded prescription pharmaceutical manufactures and importers? Another hidden tax if you happen to need prescription medications.

*The tax break you got using HSA dollars depended on your income, but since the funds were exempt from income and payroll taxes, the higher prices you pay for OTC drugs will vary.

More reading from a January Washington Times article. Those writing more recently about HSAs include Americans for Tax Reform, Michelle Malkin, and Jim Geraghty.

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Steve McGough

Steve's a part-time conservative blogger. Steve grew up in Connecticut and has lived in Washington, D.C. and the Bahamas. He resides in Connecticut, where he’s comfortable six months of the year.

1 Comment

  1. Anne-EH on March 30, 2010 at 5:42 am

    Steve, here is the Free Republic posting of your blog article.

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