Possible Upcoming Changes to FSA & HSA

Recent developments may change FSA’s and HSA’s to be more advantageous for participants. Below, the two main changes are outlined:

1. Dropping the “use it or lose it” rule:
Recently, the House Ways and Means Committee voted 23-6 on the Medical FSA Improvement Act of 2011, H.R. 1004. The bill provides for a cash out of unused FSA funds on a taxable basis. If an employer chooses, employees may withdraw up to $500, no later than seven months after the close of the plan year. This news, paired with the IRS inviting comments on the “use it or lose it rule,” serves as a strong indicator that the IRS is moving away from the decades old rule of forfeiting unused flexible spending accounts.

2. Bill proposed to repeal the recent Healthcare Reform OTC restrictions:
Legislation was recently introduced that would repeal a portion of the health care reform law that prohibits people from using their health FSA’s and HSA‘s to purchasecertain over-the-counter medications. Under current law that went into effect in 2011
, plan participants may no longer use funds from these accounts to purchase OTC medications without a letter of medical necessity from a physician. Physicians report since the provision took effect, they are burdened with the task of writing unnecessary prescriptions for medications to fight ailments as simple as the common cold or allergies. A coalition including the American Medical Association, AARP, the Consumer Healthcare Products Association., the National Association of Manufacturers and the U.S. Chamber of Commerce supports the repeal, claiming the provisions will allow patients to save both time and money. The use of OTC medicine is estimated to save the health care system over $100 billion annually due to a decreased need for office visits or diagnostic tests.