I used to have one at my former job and it had a cap plus any monies in it had to be expended by the end of the fiscal year. Some years I used it all and others I couldn't and it reverted to the employer. For a while you could buy OTCs out of it and then you couldn't. It was not taxed at anytime as apparently hers isn't. Twelve thousand seems like a pretty hefty flex account. Perhaps it is determined by family size. Don't know. Mine was never that high but appeared to be more than adequate to cover out of pocket expenses not covered by our insurance policy when submitted--copays, meds. and so forth.

Here is the official Obama position:

http://www.barackobama.com/truth-team/entry/the-facts-behind-americans-for-tax-reforms-five-claims-about-obamacare/

They are saying the average family, uses $1,200. The reduction to $2,500 is being done because most that stick in $3,000 are just building a tax deferred fund for medical expenses, at least that is my interpretation.

Seems like your friend is a little over-excited about tax on $500...

think she's saying is they currently have $12K or 4 years' worth of non-taxed money in the account. That seems odd since most employers capped the amount that an employee could stash in a FSA and some don't allow roll-over into the next year. Does she think the government is going to take the excess? All she's losing is the ability to put another $500/year away tax free.

if they already have 12K in the account, the cap on yearly contributions won't affect that at all.

apply for reimbursment , if she gets cancer her insurance company cant say "well it appears you have acne as a teenager, or as a woman gave birth or as a woman you are a woman all of which are prexisting conditions. therefore we are dropping you from insurance". if she has any health issues they will not be able to deny care based on pre-exisiting conditions. also her insurance company now has to spend 80cents of everydollar on their health care and not buy favors from politicans that will legalize their denial of healthcare from insurance companies.

into a Roth IRA and be glad that she will never ever have to worry about being unable to purchase insurance due to a pre-existing condition nor will she ever be dumped for exceeding a lifetime maximum. If money is tight with her family, the tax credits from the ACA will help pay a huge portion of her premiums once the plan is fully phased in. If money is not tight, and they make over 4 times the poverty line, then why do they think they deserve to have a special tax-deferred medical account in the first place?

I don't see anything wrong with FSAs - between myself and my kids, we use our full amount every year, and the bit of tax savings is nice.

these things are federal tax expenditures that cost the government money just like any other federal program. If the family is middle income or lower, then I think it is a good sacrifice of federal tax dollars to allow them the tax deferral. But the credits from the ACA will more than make up for any losses they might have through FSA limit reductions. If their income is high enough that they will not qualify for ACA tax credits then they don't need any special help to begin with. That's all I'm saying.

Better to argue that the cap reduction is a small price to pay for all the added benefits of the ACA.

in order to preserve their tax avoidance vehicles.

Half of them think we should all be on our own anyway. The other half think we should wait until the perfect single-payer system falls from the sky. I'm tired of hearing this crap.

Nearly half the people in this country would be willing to accept kids going without adequate health care if they thought it might save them the tax on $500 a year. Maybe no one on this thread would do that, but plenty of other people would. If *they* have good insurance it doesn't affect them, so they just don't care.

FSA accounts will now be limited to $2500/year, whereas before, the limitation was, in most cases, $5000/year.
FSA amounts do not carry over, whereas HSA accounts do.

Your friend will see her taxes go up some, as she will now be paying her family's top marginal rate, whatever that might be, on the additional $500.

*To the OP* And if your friend is still scoffing when she has this cleared up for her, ask her if she can really argue that this fairly small cost offsets all the benefits of the ACA.