A Flexible Spending Arrangements (FSA) is a fund, normally part of an employer’s cafeteria plan, that allows an employee to pay healthcare expenses with pre-tax money. The employee directs some of his or her pay into the FSA and the amount contributed is not taxed to him or her. The employee can also use the FSA money to purchase over-the-counter drugs. The employer places a limit on how much an employee can divert to his or her FSA – the government does not impose such a limit, at least for now. Here is part of Section 532(a) of HR 3962 (the House-passed Healthcare Bill):

(i) LIMITATION ON HEALTH FLEXIBLE SPENDING ARRANGEMENTS.
IN GENERAL.—For purposes of this section, if a benefit is provided under a cafeteria plan
through employer contributions to a health flexible spending arrangement, such benefit shall not be
treated as a qualified benefit unless the cafeteria plan provides that an employee may not elect for
any taxable year to have salary reduction contributions in excess of $2,500 made to such arrangement.

In short, this turns a no-limit-on-contributions, or at least one set by the employer only, not by the government, into an FSA contribution limit of $2,500 per year.

Section 531 of HR 3962 also allows payments from FSAs, MSAs, and HSAs for “expenses incurred for a medicine or a drug…only if such medicine or drug is a prescribed drug or is insulin.” Over-the-counter drugs could no longer be reimbursed under HR 3962.