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WASHINGTON — Sens. Ben Cardin, D-Md., and Mike Enzi, R-Wyo., last week introduced the Medical Flexible Spending Account Improvement Act (S. 1404), a bill that would allow consumers to pay taxes on and withdraw any remaining funds in their employer-sponsored flexible spending accounts.
Current rules require that any leftover balance in an FSA must be forfeited to the employer at the end of the plan year, oftentimes identified as the "use it or lose it" provision.
The bill is the Senate counterpart to H.R. 1004, which was introduced with bipartisan support in March by Reps. Charles Boustany, R-La., and John Larson, D-Conn.
“It is time to modernize FSAs to eliminate this burdensome ‘use it or lose it’ rule," Cardin said. "It is both fair and sound health policy to allow FSA participants to cash-out remaining funds at the end of the plan year rather than forfeiting the balance to their employer.”
Save Flexible Spending Plans, an advocacy group that hopes to make FSAs more accessible to consumers, commended Sens. Cardin and Enzi for their introduction of the bill.
“FSAs help millions of Americans manage and reduce their out-of-pocket healthcare costs,” said Joe Jackson, chairman of Save Flexible Spending Plans and CEO of benefits administration service provider WageWorks. “However, the ‘use it or lose it’ rule creates an unnecessary risk for FSA participants and a deterrent for nonparticipants. Changing this rule will ensure that participants don’t lose their hard-earned money if their out-of-pocket healthcare costs don’t match their prediction for the year.”
In addition, the bill’s sponsors noted that the original reason for adopting the “use it or lose it” provision is no longer relevant. The IRS adopted the provision to prevent FSAs from being misused as tax shelters. But according to Sen. Cardin, “with the enactment of the Patient Protection and Affordable Care Act in 2010, annual contributions to FSAs will be capped at $2,500 beginning in 2013, which makes the ‘use it or lose it’ rule unnecessary.”