Treasury rejects change to "Use It Or Lose It" Rule

The Treasury Department rejected a request from Senate Finance Chairman Sen. Chuck Grassley (R-IA) to change the "use it or lose it" rule for Flexible Spending Accounts (FSAs). Treasurer Secretary John Snow contended the department did not have sufficient legal authority to administratively change the longstanding rule.

The current rule states any FSA dollars not used by the end of the plan year revert back to the plan. In a letter sent to Sen. Grassley, Secretary Snow stated the "elimination of the rule would impact other important health care priorities of the Congress and this Administration." The Treasury estimated that removing this rule would reduce the number of Health Savings Accounts (HSAs) by 10 percent.

 

HSAs are different than FSAs because the balance left in an HSA is never lost it is portable for health care expenses in subsequent years. However, HSAs are required to be linked to a high-deductible health insurance plan, which is not required with FSAs. FSAs allow employees to contribute pre-tax dollars to an account to pay for medical expenses. However, current regulations require all funds be used by the end of the plan year. "Use it or lose it" can be one of the biggest challenges to FSA success for employers. Employees often feel skittish about their ability to predict FSA-approved expenses. Rather than chance being wrong, employees will frequently opt not to participate. But that practice can severely undermine the tax saving employers and employees may realize through an FSA in the first place.

In this Issue:

• Final HIPAA Portability Rules Issued
• HSAs Unlock New Designs for Health FSAs
• USERRA law allows 24 months of coverage on group health plan
• Treasury rejects change to "Use It Or Lose It" Rule

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