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December 02, 2004 at 07:00 PM
Treasury Is Asked To Modify Use It Or Lose It Provision On Health FSAs
Washington
Two powerful members of the Republican leadership in Congress have joined with several industry and insurer groups to ask the Treasury Department to modify its “use it or lose it” policy on health flexible savings accounts.
The industry/insurer letter asks the IRS and its parent Treasury Department to propose and finalize a new rule that would permit a limited dollar amount to be carried forward in an FSA each year to be distributed for qualified health expenses only.
The industry/insurer letter says the change would encourage more employees to use health FSAs and further advance the goal of providing employees with more choice and more responsibility in health care decisions. “We believe this action would help employers and their employees respond to rapidly rising health care costs, particularly as it becomes necessary for employees to assume greater responsibility for their health care expenses,” the letter said.
The rule requires that all funds in an FSA be spent in the year in which they are contributed, or the participant loses the balance in the account at year-end.
However, the program is not etched in stone, noted all those involved. For example, the American Benefits Council, joining a number of other insurer and industry groups, said in a letter to Treasury that the rule, which has long been applied, “formally exists only in proposed form.” That implies that Treasury could easily and quickly change the rule without the need for legislation.
“The use it or lose it rule deters many workers from participating in these tax-advantaged vehicles because they fear losing their money if not fully spent,” the ABC said. “The rule also encourages those who do participate to spend their remaining account dollars at the end of each year regardless of whether a health care service is needed.”
