Should FSAs be Freed From the ‘Use-It or Lose-It’ Rule?

While FSAs are still one of the most popular benefits offered by employers, having to exhaust the funds in these accounts at the end of every plan year to avoid losing them continues to be a big deterrent.

To remedy this, Senators Ben Cardin (D-Md) and Mike Enzi (R-Wyo) have introduced a bill (S. 1404) that would allow consumers to withdraw and pay taxes on any funds remaining in their Flexible Spending Account (FSA) at the end of each plan year. In addition to bipartisan support in the Senate, the bill has support on both sides of the aisle in the House.

This approach would help participants when out-of-pocket health care costs don’t match their estimates for the year, since the ‘Use-It or Lose-It’ rule requires that any unused balance be forfeited to the employer. While Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs) provide for rollover to the next plan year, many argue that eliminating this restriction would help more workers because FSAs are so much more common than the other consumer directed options.

According to the bill’s sponsors, the average FSA maintains an unused balance of $100, amounting to nearly $400 million in unused funds each year. A companion bill (H.R. 1004) was introduced in the House of Representatives, but has not advanced. If enacted, the provisions of either bill would apply to plan years beginning after December 31, 2012.

In cooperation with NAEBA

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