Filed Under:Health Insurance, Individual Health

Health Reform II: Lawmakers Revive FSA "Use It or Lose It" Battle

WASHINGTON BUREAU -- S. 1404, a new Senate bill, could change the flexible spending account "use it or lose it" rule.

The bill would let consumers pay taxes on any funds remaining in FSAs at the end of the year, then withdraw the funds.

Current rules require that any leftover balance in an FSA must be forfeited to the employer at the end of the plan year.

S. 1404, the Medical Flexible Spending Account Improvement Act bill, was introduced by Sens. Ben Cardin, D-Md., and Mike Enzi, R-Wyo.

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.

The Internal Revenue Service created the use-it-or-lose-it rule to keep taxpayers from using FSAs as tax shelters, but that reason is no longer relevant, Cardin and Enzi say.

"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," Cardin says in a statement. "It is both fair and sound health policy to allow FSA participates to cash out remaining funds at the end of the plan year rather than forfeiting the balance to their employer."

S. 1404 and H.R. 1004 are backed by Save Flexible Spending Plans, a pro-FSA lobbying group.

Joe Jackson, chairman of Save Flexible Spending Plans and chief executive officer of WageWorks Inc., San Mateo, Calif., says the use-it-lose-it rule creates an unnecessary risk for FSA participants and a deterrent for non-participants.

Changing the rule "will ensure that participants don't lose their hard-earned money if their out-of-pocket health care costs don't match their prediction for the year," Jackson says.

Other FSA coverage from National Underwriter Life & Health:

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