MANAGED CARE June 2005. ©MediMedia USA
A new rule by the Treasury Department is supposed to make flexible spending accounts more attractive, but stops short of creating the kinds of FSAs that experts have long said will attract millions of people.
The Treasury Department has, in a sense, made the year 21Ž2 months longer for those who have FSAs. Enrollees get the extra time to spend what's left in the FSA or to lose it — a big step, to be sure, but still far short of allowing FSAs to accrue indefinitely. FSAs are the oldest health spending account and employers have been fighting against the use-it-or-lose-it rule for years.
Bonnie B. Whyte, president of the Employers Council on Flexible Compensation, told Managed Care last year that the use-it-or-lose-it rule "is just downright dumb. It acts as a real deterrent for people participating in FSAs."
About 22 million workers have the option to use FSAs, though only 7 million do so, according the council.
"Rather than spending the money before New Year's Day, you'll have it until March 15," Joe Martingale, a health care strategy expert at Watson Wyatt, tells USA Today.
Treasury Secretary John Snow told the Wall Street Journal that the extra 21Ž2 months, "will ease the year-end spending rush prompted by the prior rule," which stated that employees with FSAs had to use up the entire account by the end of the year. Many workers, the paper said, go into a buying frenzy mode in which they "scramble to stock up on eyeglasses, aspirin, and other items in order to drain their accounts by the deadline."
This problem has not escaped legislators' notice. Two senators, Republican Jim DeMint and Democrat Ken Salazar, are proposing legislation that would allow, according to the WSJ, "as much as $500 of unused FSA funds to be carried forward to use in the next year, or [to be] contributed to a health savings account."
An editorial in the May 23 edition of the Washington Post applauds the move. "It makes sense to put money in health care spending accounts, because you can pay your expenses with pretax dollars," says the newspaper. "But because these accounts are set up on a use-it-or-lose-it annual basis, guessing too high is dangerous: At year's end, you've either lost the money, which goes to your employer, or you scramble to spend it on things you might not need. Why not get that extra pair of glasses if the money's going to disappear otherwise?"