[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

IMPACT OF LIMITATIONS ON THE USE OF
TAX-ADVANTAGED ACCOUNTS FOR THE
PURCHASE OF OVER-THE-COUNTER MEDICATION

=======================================================================

HEARING

before the

SUBCOMMITTEE ON OVERSIGHT

of the

COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

APRIL 25, 2012

__________

Serial No. 112-OS11

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Printed for the use of the Committee on Ways and Means

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COMMITTEE ON WAYS AND MEANS

DAVE CAMP, Michigan, Chairman

WALLY HERGER, California SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas CHARLES B. RANGEL, New York
KEVIN BRADY, Texas FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin JIM McDERMOTT, Washington
DEVIN NUNES, California JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts
GEOFF DAVIS, Kentucky XAVIER BECERRA, California
DAVID G. REICHERT, Washington LLOYD DOGGETT, Texas
CHARLES W. BOUSTANY, Jr., Louisiana MIKE THOMPSON, California
PETER J. ROSKAM, Illinois JOHN B. LARSON, Connecticut
JIM GERLACH, Pennsylvania EARL BLUMENAUER, Oregon
TOM PRICE, Georgia RON KIND, Wisconsin
VERN BUCHANAN, Florida BILL PASCRELL, Jr., New Jersey
ADRIAN SMITH, Nebraska SHELLEY BERKLEY, Nevada
AARON SCHOCK, Illinois JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

Jennifer Safavian, Staff Director

Janice Mays, Minority Chief Counsel

______

SUBCOMMITTEE ON OVERSIGHT

CHARLES W. BOUSTANY, Jr., Louisiana, Chairman

DIANE BLACK, Tennessee JOHN LEWIS, Georgia
AARON SCHOCK, Illinois XAVIER BECERRA, California
LYNN JENKINS, Kansas RON KIND, Wisconsin
KENNY MARCHANT, Texas JIM McDERMOTT, Washington
TOM REED, New York
ERIK PAULSEN, Minnesota

C O N T E N T S

__________
Page

Advisory of April 25, 2012, announcing the hearing............... 2

WITNESSES

Mr. Scott M. Melville, President and Chief Executive Officer,
Consumer Healthcare Products Association, testimony............ 5
Dr. Joel M. Feder, D.O., F.A.C.O.F.P., Captain MC, USN (Ret.),
American Osteopathic Association, testimony.................... 20
Mr. Steven Taylor, Chief Executive Officer, Sjogren's Syndrome
Foundation, testimony.......................................... 27
Ms. Jennifer Hatcher, Senior Vice President, Government & Public
Affairs, Food Marketing Institute, testimony................... 34
Mr. Paul N. Van de Water, Senior Fellow, Center on Budget and
Policy Priorities, testimony................................... 40
The Hon. Lynn Jenkins............................................ 51
The Hon. Erik Paulsen............................................ 58

SUBMISSIONS FOR THE RECORD

The Hon. Wally Herger............................................ 64
The Hon. Dave Reichert........................................... 66
American Medical Association..................................... 68
Center for Fiscal Equity......................................... 72
Henderson Brothers............................................... 75
Infinisource..................................................... 76
National Business Group on Health................................ 81

IMPACT OF LIMITATIONS ON THE USE
OF TAX-ADVANTAGED ACCOUNTS FOR
THE PURCHASE OF OVER-THE-COUNTER MEDICATION

----------

WEDNESDAY, APRIL 25, 2012

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The subcommittee met, pursuant to call, at 2:30 p.m., in
Room 11002, Longworth House Office Building, the Honorable
Charles Boustany [chairman of the subcommittee] presiding.
[The advisory of the hearing follows:]

HEARING ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

Boustany Announces Hearing on the Impact of Limitations on the Use of
Tax-Advantaged Accounts for the Purchase of Over-the-Counter Medication

Wednesday, April 25, 2012

Congressman Charles W. Boustany, Jr., MD, (R-LA), Chairman of the
Subcommittee on Oversight of the Committee on Ways and Means, today
announced the Subcommittee will hold a hearing on limitations on the
purchase of over-the-counter (``OTC'') medication with tax-advantaged
accounts such as health care Flexible Spending Arrangements (``FSAs''),
Health Savings Accounts (``HSAs'') and Health Reimbursement Accounts
(``HRAs''). The hearing will take place on Wednesday, April 25, 2012,
in Room 1100 of the Longworth House Office Building, beginning at 2:30
P.M.

In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing. A list of invited
witnesses will follow.

BACKGROUND:

Millions of Americans currently use tax-advantaged accounts to save
for medical expenses defined as ``qualified'' by the Internal Revenue
Code (IRC). Contributions to and distributions from these accounts are
generally tax-exempt and may be used for unreimbursed medical expenses
such as deductibles and co-payments. Approximately 33 million Americans
are in families with FSAs, which are offered by 29 percent of small
businesses and 85 percent of large employers. An additional 11.4
million Americans are enrolled in an HSA.

Until 2011, these account holders could use their tax-free savings
to purchase OTC medication without a prescription. Recent changes to
the Tax Code modified the definition of qualified medical expenses,
generally prohibiting Americans from using their FSA, HSA or HRA funds
for medication not prescribed by a health care provider. As a result,
Americans must now purchase non-prescribed OTC medications with after-
tax dollars, resulting in a tax increase on American families.

Physician groups have suggested that the OTC medication
prescription requirement has imposed an unreasonable administrative
burden, resulted in longer waits for appointments, and increased health
care costs. The Subcommittee's hearing will examine how these changes
have specifically affected patients, consumers, physicians, and health
care costs and spending.

In announcing the hearing, Chairman Boustany said, ``Too often in
Washington, officials make decisions about health care policy based on
abstract theories and budgetary scores. This hearing will focus on how
one decision in particular--the limitation on how consumers may use
their own FSA, HSA or HRA money--has adversely affected access and
affordability for families, physicians, and job creators.''

FOCUS OF THE HEARING:

The hearing will focus on reviewing the rules affecting FSAs, HSAs
and HRAs and the impact the rules have on consumers, physicians, and
employers.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

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by the close of business on Tuesday, May 9 2012. Finally, please note
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For questions, or if you encounter technical problems, please call
(202) 225-1721 or (202) 225-3625.

FORMATTING REQUIREMENTS:

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1. All submissions and supplementary materials must be provided in
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Note: All Committee advisories and news releases are available on
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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 10 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 it is 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 payers 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 prepared statement of Mr. Melville follows:]

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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.
Thank you.
[The prepared statement of Dr. Feder follows:]

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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 Officer 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 prepared statement of Mr. Taylor follows:]

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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 prepared statement of Ms. Hatcher follows:]

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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 prepared statement of Mr. Van de Water follows:]

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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.
Thank you.
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 have 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.
Thank you.
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]

[GRAPHIC] [TIFF OMITTED] T9936.034

[GRAPHIC] [TIFF OMITTED] T9936.035

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 an 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.
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?
[Witnesses nodding.]
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]
[GRAPHIC] [TIFF OMITTED] T9936.036

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.]

[Submissions for the Record follow:]

The Honorable Wally Herger

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The Honorable Dave Reichert

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American Medical Association

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Center for Fiscal Equity

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[GRAPHIC] [TIFF OMITTED] T9936.047

[GRAPHIC] [TIFF OMITTED] T9936.048

[GRAPHIC] [TIFF OMITTED] T9936.049

Henderson Brothers

[GRAPHIC] [TIFF OMITTED] T9936.050

Infinisource

[GRAPHIC] [TIFF OMITTED] T9936.051

[GRAPHIC] [TIFF OMITTED] T9936.052

[GRAPHIC] [TIFF OMITTED] T9936.053

[GRAPHIC] [TIFF OMITTED] T9936.054

[GRAPHIC] [TIFF OMITTED] T9936.055

National Business Group on Health

[GRAPHIC] [TIFF OMITTED] T9936.056

[GRAPHIC] [TIFF OMITTED] T9936.057