Treasury Dashes Hope For Change On FSA Use It Or Lose It Rule
The U.S. Treasury Department has dashed the hopes of the employee benefits industry and some powerful members of Congress that it would modify by regulation its “use it or lose it” policy on health flexible spending accounts.
The decision was disclosed through a letter sent to Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, over the Christmas holidays. The letter was signed by Treasury Secretary John Snow, implying it had full Bush administration support.
Snows letter did offer one carrot, although the industry didnt think it was a very appetizing one. Absent legislative action, “Treasury continues to look for creative solutions to the problem,” he said, including allowing a brief administrative grace period in the application of the “use it or lose it” rules consistent with other deferred compensation rules.
But the industry and its supporters in Congress, such as Sen. Grassley, believe the letter might force action through the legislative route in order to provide greater flexibility to employees who want to carry over a limited dollar amount in a flexible spending account to use for qualified health expenses only. That spells “offset,” explained Paul Dennett, vice president for health policy at the American Benefits Council in Washington. By that, he means that any effort to make the rule more flexible and allow employees to carry over money left in FSAs from year to year through legislation would require Congress to take the money from another benefit already provided.
The reason the industry, and both Sen. Grassley and Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee, asked Treasury to change the rule by regulation was because under arcane federal government budgeting rules that approach would have eliminated the need to take the money from another program, Dennett said.