> The healthy alternative would be: Cut the FSA, let people just tax deduct medical expenses at tax time, even small ones.

That's an interesting rabbit hole. Some FSA types, but not all, have full funds available on day 1 of the year. And no provision for clawback if you terminate your employment before the end of the year. So when you forfeit due to overestimating the total, it does not go to the IRS, but your company. But the upside is the funds being available on day 1, with you having to wait until the next tax filing rolls around.