New legislation looks to cut out 'use-it-or-lose-it' provision from FSAs

WASHINGTON — Reps. Charles Boustany, R-La., and John Larson, D-Conn., on Friday introduced bipartisan legislation that would eliminate the “use-it-or-lose-it” provision associated with flexible spending accounts.

Under the Medical Flexible Spending Account Improvement Act, FSA participants would be able to cash out and pay taxes on any remaining FSA balances at the end of the year. The IRS adopted the forfeiture, or “use-it-or-lose-it” provision, to prevent FSAs from being misused as tax shelters; however, a new $2,500 cap on FSA contributions set to begin in 2013 as required by the Patient Protection and Affordable Care Act addresses that concern separately.

“Americans want healthcare solutions that lower costs,” Boustany stated. “FSAs are a great place to start. These accounts should not penalize individuals who save for medical expenses. We should eliminate this provision and empower consumers to make prudent healthcare decisions.”

Larson added, “Now is the time to finally eliminate the use-or-lose provision. It is truly unfair that families must forfeit hard-earned dollars that they have reserved for health expenses if they remain in the account at the end of the year.”

Save Flexible Spending Plans, an advocacy campaign that works to promote the accessibility and use of FSAs, applauded the bill’s sponsors for their attention to the issue. “As the price of health care continues to climb, FSAs help millions of working Americans manage and hold down their out-of-pocket costs,” stated Joe Jackson, chairman of Save Flexible Spending Plans and CEO of benefits provider WageWorks.

“Unfortunately, the ‘use-it-or-lose-it’ rule creates an unnecessary risk for FSA participants and a deterrent for nonparticipants," Jackson added. "A change to this rule ensures that individuals will not be forced to use up or forfeit any remaining funds simply because their families’ needs did not match their predicted annual healthcare expenses.”