Senate Bill Would End FSA “Use it or Lose it” Clause
The Medical Flexible Spending Account Improvement Act (S.1404) introduced on July 21st is the counterpart of H.R. 1004 introduced in March.
More than 85% of large employers offer FSAs, but only about 20% of eligible employees enroll. Supporters of the Bill contend that the “use it or lose it” provision is a deterrent for many individuals who do not participate. Changing the rule will ensure that participants don’t lose money if their out-of-pocket health care costs don’t match their prediction for the year.
The Bill’s sponsors contend that the original reason for adopting this provision is no longer relevant. The IRS adopted the provision to prevent FSAs from being misused as tax shelters. Annual contributions to FSAs will be capped at $2,500 beginning in 2013, which makes the “use it or lose it” rule unnecessary.
We will keep you advised of developments.