Bill seeks to eliminate 'use it or lose it' provision in FSAs

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.”


- 11:15 PM
Rhonda Rhyne says

As healthcare consumers and American stakeholders affected by 16%+ GDP healthcare expenses dramatically draining our country’s economic strength, we should all drive support of the bill for the FSA Improvement Act. The Act removes significant disincentives to the adoption of money-saving tools by allowing participants to withdraw non-used funds at the end of each year. The FSA Improvement Act is at the core of consumer driven health care (CDHC). CDHC intuitively helps control costs as patients become true stakeholders and are fiscally, emotionally, and physically engaged in the choices, decisions and outcomes. On the objective side, a McKinsey study found that CDHC patients were twice as likely as patients in traditional plans to ask about cost and three times as likely to choose a less expensive treatment option. Further, it reported that chronic patients were 20 percent more likely to follow treatment regimes carefully. Now this is progress! Thankfully, CDHC is alive and present and, in order to reduce costs and improve overall ROI on health care, we need to strongly encourage any programs, including legislative, which promote, incent, and reward CDHC.

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