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Bill would remove 'use it or lose it' provision for FSAs
By Insure.com staff

A Congressional bill would let consumers withdraw and pay taxes on any remaining funds in their medical flexible spending accounts (FSA) at the end of the year instead of forcing workers to forfeit the remaining balances to their employers, as current rules require.

U.S. House Rep. Charles Boustany, R-La., and Rep. John Larson, D-Conn., introduced the Medical Flexible Spending Account Improvement Act March 10.

FSAs are funded by pre-tax contributions from employees, and the money can be used for qualified medical expenses, such as health insurance deductibles or qualified services that are not covered by a health plan. Employees decide annually how much to set aside in the accounts the following year. If they don't use all the money, they lose it. The use-or-lose provision is designed to prevent people from using the accounts as tax shelters.

About a quarter of participants forfeit some of their FSA funds every year, according to the bill's sponsors.

"Over 85 percent of large employers offer FSAs but only 20-22 percent of eligible employees enroll," they stated in a letter to fellow lawmakers. "The principal reason for not enrolling, or for underfunding accounts is fear of the 'use-or-lose' provision."

Save Flexible Spending Plans, an advocacy campaign sponsored by the Employers Council on Flexible Compensation, praised the proposal.

"In considering changes to improve our health care system, removing 'use it or lose it' is an easy fix," said Joe Jackson, the campaign's chairman and CEO of benefits provider WageWorks Inc. headquartered in San Mateo, Calif.


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