Fighting to Preserve the Value of Flexible Spending Accounts

For the last three years, Save Flexible Spending Plans has preserved the use of FSAs and worked to make the benefit more useful to the consumers who need it.

End Use It or Lose It Rule

Eliminating the outdated and burdensome “use it or lose it” rule, which forces FSA participants to give up any funds they haven’t spent by the end of their plan year, is a crucial step to helping make the benefit more accessible and user-friendly.

Families whose medical needs don’t match their anticipated expenses don’t deserve to lose their money at the end of the year, especially since it can be very difficult to accurately predict the cost of many medical procedures. 

Impact of Health Reform

There are two restrictions on FSAs included in the Patient Protection and Affordable Care Act.

As of January 1, 2011, consumers are required to obtain a doctor’s prescription in order to use their FSAs to pay for over-the-counter (OTC) medications, such as allergy medicine and cough syrup.  This provision will actually increase health care costs because consumers will be forced to schedule additional doctor's appointments to get prescriptions for Tylenol, Claritin and other similar drugs - an utter waste of both consumers' and physicians' limited time.

Additionally, on January 1, 2013, contributions to FSAs were capped at $2,500 per year.  This cap will harm approximately seven million FSA participants whose out-of-pocket health care expenses exceed that cap - many of whom may suffer from chronic illnesses. 

Legislative Solutions

There was some movement in the 112th Congress to improve the access and use of FSAs.  To address the “use it or lose it” rule, Senators Ben Cardin and Mike Enzi and Representatives Charles Boustany and John John Larson introduced the Medical Flexible Spending Account Improvement Act, which would have allowed consumers to withdraw and pay taxes on any leftover funds in their FSAs instead of forfeiting the balance.

Additionally, legislation introduced by Senator Kay Hutchinson and Representative Erik Paulsen, the Patient’s Freedom to Choose Act, would have repealed the requirement for patients to secure a doctor’s prescription in order use an FSA to pay for the purchase of OTC medications and planned $2,500 contribution cap.

Moving forward, it is critical that President Obama and the new Congress protect FSAs from any additional restrictions and allow these programs to continue to serve as a safety net and cost-effective solution for millions of Americans who use their FSAs to cover their out-of-pocket health care expenses. 

For a comprehensive list of all pending legislation that affects tax-advantaged benefits, please visit the Employers Council on Flexible Compensation (ECFC) website here.