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December 09, 2004 at 07:00 PM
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.
