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Fitness and FSAs could provide more tax savings under recently-approved health care bills

Gym memberships could be deductible. Medical flexible spending accounts would be more appealing. Those are just part of tax changes included in a series of health care bills approved last week by the Ways and Means Committee. Now the question is, will they make it into law?

Working out_Contours Express via Flickr CC
Working out at Contours Express. (Photo courtesy Flickr CC)

It's hot here in Austin. That's probably why most of my neighbors abandoned their usual outdoor workouts and jammed into my regular exercise class this morning.

This happens every so often. Being a West Texas gal used to wide open spaces, I find the crowded space very uncomfortable. And I consider each time it happens whether I want to keep paying the fitness club membership fee.

Then I cool down, literally, and do the math. Spreading my monthly fee over the overall number of sessions I attend, I get a pretty darn good deal. So I'll be back, crowded class or not.

Maybe I'd be more sanguine about the elbow-to-elbow class if I got a tax break for it.

That could happen if a bill approved last week by the House Ways and Means committee makes it through the full House, Senate and into tax law.

In addition to that fitness-related bill, the tax-writing panel also OKed a couple of bills that would expand or return some lost benefits (think rollovers and off-the-shelf medication) to flexible spending accounts (FSAs), the popular workplace benefit that helps folks pay for uninsured medical costs.

Deducting fitness costs: Since I'm still on my workout adrenaline high, let's start with the fitness proposal.

Gym memberships, as well as exercise class fees and certain other fitness expenses would count as deductible medical expenses under the H.R. 6312, which its authors have dubbed the PHIT Act.

Cute, huh? PH pronounced as F, with the acronym standing for Personal Health Investment Today.

In addition to being deductible on Schedule A as medical expenses, the costs detailed in the PHIT Act also could be paid from tax-advantaged health savings accounts (HSAs) and flexible spending accounts (FSAs).

The deductible amount, however, is limited. There would be an annual $500 cap for individuals or double that for joint filers and heads of households.

Some activities also are explicitly excluded from the tax break. The bill says taxpayers couldn't claim the deduction for the costs related to golf, hunting, sailing or horseback riding. Sorry PGA and America's Cup wannabes, as well as big game trackers and equestrians.

And while sports safety equipment would be a deductible expense, that means equipment. You couldn't claim what you pay, for example, for fitness videos, books or similar materials.

PHIT pros: I'm not holding my breath, in exercise class or otherwise, however, for passage of the PHIT Act, even though there are some arguments for voting yea on the bill.

Yes, Capitol Hill Republicans are pushing to do a second round of tax reform. This could get rolled into that effort.

Yes, the PHIT Act has bipartisan support, with its original sponsors being Missouri Republican Rep. Jason Smith and Wisconsin Democrat Rep. Ron Kind.

It cleared the House tax-writing committee easily, The Committee passed the bill 28-to-7, with six W&M Democrats joining their GOP colleagues. Overall the PHIT Act has 135 cosponsors. A companion bill in the Senate has 16 cosponsors.

And yes, it probably wouldn't cost Uncle Sam that much in lost taxes. The official estimate is $3.5 billion over 10 years.

Much of that decade-long cost would come from folks who have turned to HSAs as part of high deductible medical plans they purchase, either on their own or through a growing workplace offering, to meet increasing health insurance costs.

A smaller part would come from taxpayers who itemize. Most filers already claim the standard amount and that option is expected to be even more popular under the Tax Cuts and Jobs Act (TCJA).

Effective this tax year under the new tax law, the standard deductions for each filing status have almost doubled from prior tax law amounts. That will negate the tax benefit of itemizing for many.

Plus, for those who still itemize, the medical deduction threshold in 2019 goes to 10 percent from the current 7.5 percent of adjusted gross income.

PHIT cons: Working against the PHIT Act, however, is that the bill goes against the GOP-controlled Congress' general approach to tax law.

Adding this or any other new tax break to the Internal Revenue Code flies in the face of the ostensible simplification that the GOP touted when it pushed the TCJA into law last year.

In addition, many tax experts and economists are not fond of the measure.

"Every principle of tax policy is violated by this [bill]," Leonard Burman, a fellow at the Urban Institute who was a Treasury Department tax official during the Clinton Administration, told the Wall Street Journal. "It's not at all clear that it would have any effect on overall health of the population or that it's a particularly effective way to make people healthy."

In fact, Burman and opponents of the bill say the PHIT Act would primarily benefit high-income households that purchase gym memberships.

Still, logic or even budgetary costs don't always win when it comes to taxes.

So if you have a fitness club or gym membership and itemize or have an FSA or HSA, keep an eye on this bill. You might one tax year get a tax break for your exertion.

OTC FSA option would return: You also want to watch Congress if you depend on a medical flexible spending account (FSA) for other already approved medical costs. Yes, those same tax-favored medical accounts that, under PHIT, could be used to pay for gym expenses.

I suspect more people have FSAs than gym memberships and they probably are cheering the W&M Committee passage last week of H.R. 6199.

Known as the Restoring Access to Medication Act of 2018, this bill would return to FSAs the broader over-the-counter medical product reimbursement option. It also would add new items to the approved reimbursement list. 

Optometrist office touts FSA benefits of new eyeglasses_Kay Bell photo

In case you don't have an FSA, it's a workplace benefit where you can put pre-tax dollars that you then use to pay for medical expenses not covered by your insurance.

In 2003, the Internal Revenue Service made FSAs more appealing by letting account owners use the money to pay for over-the-counter, or OTC, treatments. This meant account holders were able to use up more of their FSA money each benefit year instead of losing it.

The Affordable Care Act (ACA), however, threw a wrench into the OTC FSA option.

Beginning in 2011, the ACA required that OTC drugs be prescribed by a doctor in order to count as FSA reimbursable expenses. The change was made to raise money for other provisions in Obamacare, as the health care law is still called by many.

Several Congressional attempts have been made over the years to reverse this ACA OTC FSA provision. One even cleared the full House back in 2012. But none has made it into law.

This latest bill, sponsored by Rep. Lynn Jenkins (R-Kansas) and Rep. Grace Meng (D-New York), takes another shot at returning to the original OTC FSA standard, reversing the de facto prohibition via the Rx requirement. It also adds feminine products to the list of qualified medical expenses for these tax-favored health accounts.

It passed the tax-writing committee last week 24-10.

"Over-the-counter medications are often the front-line treatment for many illnesses or for maintenance of chronic diseases and should be treated as medically-reimbursable health care therapies just as prescription medication are," said Jenkins following the vote. "Restricting consumers' ability under FSA as another tax preferred accounts and imposes another unfair cost increase on families at a time when many still struggle financially."

Resolving FSA rollovers: The potential to lose FSA money also has long been a sore point among these account owners.

Companies can provide FSA enrolled workers a grace period to use the medical money. They also can provide employees an option to roll over part of their unused FSA funds.

Both of those options are at the discretion of the companies offering the tax-favored benefit.

For years, there have been attempts by federal lawmakers to deal with FSA's use-it-or-lose-it limits. H.R. 6314 is the latest effort.

Specifically, the Responsible Additions and Increases to Sustain Employee Health Benefits Act of 2018 would expand the rollover option. Sponsors Rep. Steve Stivers (R-Ohio) wants to let FSA owners carry over any remaining balance, not just the $500 optional limit, to the next year.

"We should be giving patients more control over their health care decisions, not less," said Stivers. "H.R. 6313 repeals the use-it-or-lose-it rule and allows balances in FSAs to be carried forward each year, giving families the ability to protect themselves from unexpected medical bills. By allowing them to rollover their unused funds it will incentivize consumers to only purchase what they need, ensuring more economic efficiency in the health care system."

If the PHIT bill makes it into tax reform 2.0, these two FSA revisions should be in there, too.

8 other bills: In addition to the PHIT and FSA measures, the Ways and Means Committee cleared eight other tax-related health care bills last week.

Here they are, along with a brief synopsis for each, via information provided by Committee Chair Kevin Brady (R-Texas).

H.R. 6301, the Promoting High-Value Health Care Through Flexibility for High Deductible Health Plans Act of 2018, sponsored by W&M Health Subcommittee Chairman Peter Roskam (R-Illinois) and Rep. Mike Thompson (D-California). This bill would expand access to and enhance HSAs by allowing account owners greater flexibility in designing their plan design while still being able to maintain their eligibility for HSA contributions. Among the areas allowed to be covered are tele-health consultations, chronic disease management, diabetic testing strips and primary care visits below the deductible.

H.R. 6305, the Bipartisan HSA Improvement Act of 2018, sponsored by Rep. Mike Kelly (R-Pennsylvania) and Rep. Earl Blumenauer (D-Oregon). This bill would expand access to HSAs by allowing spouses to also make contributions to their husbands/wives accounts. It also would let employers offer certain services to employees through on-site or retail clinics.

H.R. 6306, the Improve the Rules with Respect to Health Savings Accounts, sponsored by Rep. Erik Paulsen (R-Minnesota). This bill would increase contribution limits for HSAs. It also would allow both spouses to contribute to make catch-up contributions to the same account, as well as create a new grace period for medical expenses incurred before the HSA was established.

H.R. 6309, the Allowing Working Seniors to Keep Their Health Savings Accounts Act of 2018, sponsored by Rep. Erik Paulsen (R-Minnesota). This bill would expand access to HSAs to include seniors who are still in the workforce. The measure, say supporters, would save Medicare money because older individuals cold then use their own health care dollars to pay for services instead of relying on the federal health care program.

H.R. 6311, the Increasing Access to Lower Premium Plans Act of 2018, sponsored by Chairman Peter Roskam (R-Illinois) and Rep. Michael C. Burgess, M.D. (R-Texas). This bill would allow the ACA's premium tax credit, used by qualifying taxpayers to help cover their insurance premiums, to be used for qualified plans offered outside of the exchanges. It also would expand access to the lowest-premium plans available for all individuals purchasing coverage in the individual market and allow the premium tax credit to be used to offset the cost of such plans.

H.R. 6317, the Primary Care Enhancement Act of 2018, sponsored by Rep. Erik Paulsen (R-Minnesota) and Rep. Earl Blumenauer (D-Oregon). This bill would let HSA-eligible individuals participate in a direct primary care (DPC) arrangement. Under a DPC plan, instead of paying a doctor a fee for each medical procedure, patients pay a monthly subscription and hire a doctor they intend to use as they recover. H.R. 6317 also would allow DPC provider fees to be covered with HSA funds.

H.R. 6414, the Health Savings Act of 2018, sponsored by Rep. Burgess (R-Texas) and Rep. Roskam (R-Illinois). This bill would expand eligibility and access to HSAs by allowing plans categorized in the health care marketplaces as "catastrophic" and "bronze" to qualify for HSA contributions.

H.R. 4616, the Employer Relief Act of 2018, sponsored by Rep. Devin Nunes (R-California) and Rep. Mike Kelly (R-Pennsylvania. This bill would provide retroactive relief from the ACA's employer mandate. It also would further delay the health care law's Cadillac tax.

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Kay Bell

Revanche, could the therapy perhaps count anyway as doctor-prescribed treatment for diagnosed medical conditions, even under current tax law? IRS regs would need to be clear that this exclusion is for purely recreational riding. Kay

Revanche @ A Gai Shan Life

I hope some of these pass, though I'm annoyed that horseback riding is excluded! Equestrian therapy has been exceptionally effective for wounded warriors and disabled children at a stable I'm familiar with. Those families could use the boost.

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