Smart Benefits: Flexible Spending Accounts Get More Flexible

Smart Benefits: Flexible Spending Accounts Get More Flexible

Flexible Spending Accounts (FSAs) have been used by consumers for many years to help pay for out-of-pocket medical expenses. Known for their pre-tax advantages, these savings vehicles have provided convenience and savings to millions. But there’s always been one big drawback: the “use it or lose it” feature, which means that if employees don’t spend the entire amount they set aside, they lose the money. That’s all about to change.

IRS Reverses Use it or Lose It

The IRS announced last Thursday that it will now allow consumers to carry forward any unused balance up to $500 from the current plan year and apply it in the following plan year.

Effective Immediately

The change is effective immediately for current plan years in force now. And the timing couldn't be better as many consumers are bracing for the increased costs of healthcare reform, including higher out-of-pocket limits being set for most health plans.

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FSA Contribution Limits Unchanged

Employees can still save up to $2,500 per plan year through their FSA; the $500 carryover amount is allowed in addition to the maximum annual contribution limit.

Leveling the CDHP Playing Field

The IRS’ announcement will put FSAs more on par with similar vehicles known as Health Savings Accounts (HSAs), which allow much more money to be saved and carried over from year to year.

Employer Requirements

Don’t forget: employers who want to offer this enhanced feature must amend their cafeteria plan documents to meet the new conditions of this law before doing so.

 

Amy Gallagher has over 21 years of healthcare industry experience guiding employers and employees. As Vice President at Cornerstone Group, she advises large employers on all aspects of healthcare reform, benefit solutions, cost-containment strategies and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, and is often quoted by national publications on the subject matter. Locally, Amy is a member of SHRM-RI, the Rhode Island Business Group on Health, and the Rhode Island Business Healthcare Advisory Council.