A new bill introduced in the Senate last week could help consumers keep their employer-sponsored flexible spending account funds at the end of the year.
Sens. Ben Cardin (D-Md.) and Mike Enzi (R-Wyo.) introduced the Medical Flexible Spending Account Improvement Act, S. 1404, that would allow consumers to pay taxes on and withdraw their remaining funds from their FSAs.
“It is time to modernize FSAs to eliminate this burdensome ‘use it or lose it’ rule. 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,” says Sen. Cardin when introducing the bill.
“We’ve been working on this for a really long time so we’re very excited to see [the] bill being introduced,” says Jody Dietel, chief compliance officer of WageWorks and executive director of Save Flexible Spending Plans.
“This bill, along with its companion in the house, H.R. 1004, allows employees who don’t accurately predict their health care expenses to be able to take any that they didn’t spend as taxable income at the end of the year. It’s a real step forward; use or lose it has to go away,” she adds.
H.R. 1004 was introduced in March with bipartisan support by Reps. Charles Boustany (R-La.) and John Larson (D-Conn.).
Dietel says the No.1 impediment to people being able to effectively use FSAs is the fear of if they don’t accurately predict their health care expenses they are going to lose their money, which leads to unnecessary spending toward the end of the year.
Two things are for certain, she adds: Health care costs will continue to rise and consumers are going to have out-of-pocket expenses.
“We don’t want people to decide between feeding their family and continuing their treatment regimens,” says Dietel.
Dietel goes on to add that prior to the Patient Protection and Affordable Care Act there was not a mandated limit; it was up to the employer as to how much an employee could set aside. “The IRS at the time was concerned people would shelter large amounts of money on an annual basis but in reality people didn’t shelter money because they did forfeit amounts, people got used to underestimating the money they would need for their health care expenses,” she says.
The Affordable Care Act has put a limit in place which starts in January of 2013 that prevents an employee from setting aside more than $2,500 in their health FSA.
“The health status of Americans is the real issue we want to get at, they have to have access to funds without concern about whether or not they have the money available,” says Dietel. WageWorks is a provider of tax-advantaged programs for health benefits and works closely with Save Flexible Spending Plans, a national grassroots advocacy campaign that protects the use and accessibility of FSAs.
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