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Life Health > Health Insurance

Say Good-bye To Goldilocks

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I could not have been more pleased than when I read about some major trade groups pushing the Treasury Department to modify the use it or lose it provision in health flexible spending arrangements.

The use it or lose it rule means that any funds left unspent in the account by year-end are forfeited by the employee who has the FSA and revert back to the employer.

What these trade groups, including the American Benefits Council, told Treasury in a letter is that since the rule was only proposed but never finalized, “the Internal Revenue Service could propose and finalize a new rule that would permit a limited dollar carry forward for a limited time in a health FSA to be distributed for qualified health expenses only.”

This change, they continued, “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.”

It is only natural that employees would resent that money they have contributed or that was contributed on their behalf in a specific year is to be forfeited if they do not spend it all in that year. On the face of it this seems counterproductive if ones goal is to encourage the use and proliferation of such arrangements in the workplace.

The other thing this rule does is to encourage often unnecessary spending near the end of the year as employees realize they may have an unspent balance that will be forfeited. This also is counterproductive as it encourages utilization of health care procedures that may be covered by the plan but arelets be honestless than medically necessary.

Just as two wrongs dont make a right, two counterproductive actions dont make a productive one.

We have had a flexible spending account at the National Underwriter Company for a few years now, not as our primary health plan, but for expenses not covered by insurance. The program has a use it or lose it provision and I have experienced both sides of the situation.

With our program, you have to choose an amount to be deducted pre-tax from your salary at the beginning of the year and it cannot be changed at any time during that year. So, in essence, employees have to play at being Goldilocks. You dont want to put aside too little. And you dont want to put aside too much. No, you want to put aside the amount thats just right.

This is not easy, no matter how carefully you try to calibrate what your uncovered medical expenses may be during the year.

One year I had a sizeable amount of money left in the account near the end of November. Since glasses are covered under the plan, I not only got a new pair of glasses but my first-ever pair of prescription sunglasses. How had I lived without them all my life?

It made me wonder how many pairs of glasses are purchased in December to suck up the funds that might have been lost otherwise. My guess is that lots and lots of folks are sporting new spectacles on New Years Eve due to their FSAs.

Another year I again had some unspent funds, but this time there was uncertainty about whether some medical expenses were going to be covered. I guessed that they werent going to be and kept the funds unspent to cover those expenses. Well, you guessed it, the expenses were covered and I lost the money. It wasnt much, but it still was annoying.

I hope that reason will prevail with the Treasury and IRS and that use it or lose it will end up in some museum for useless regulations. The plain fact is that no one is going to get rich on the amounts that are likely to be approved to carry forward, if thats what the government is afraid of. But this common sense change could encourage a lot more people to try the plans in the first place.

Steve Piontek


Reproduced from National Underwriter Edition, December 10, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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