'Use-it-or-lose-it' health account spending rule could get lostby Martin Moylan, Minnesota Public Radio
St. Paul, Minn. — Many people are again racing to use the money saved in their health care flexible spending accounts. Money saved has to be spent on qualifying expenses by the end of the day Saturday — or lose it all.
That's the component of the FSA that keeps many people from signing up, but there is some chance the use-it-or-lose rule could be overturned, perhaps next year.
Cindy Schille of Newport was at the optical department in Target in east Woodbury Wednesday afternoon, working out ways to use her flexible spending account.
"We had like $500 to spend this week," Schille said.
She had bought two pairs of eyeglasses for one of her sons, still had more than $300 to spend.
"I think we can do it," Schille said. "It's a matter of spending them down or losing the money."
Sales this week for this Target's optical department are two to three times what they normally are.
"We're noticing a huge increase, especially these last two weeks," said Bethany Peirson, who works in the department. "Everyone (is) using their final dollars before they go to waste. People have come in for multiple pairs of sunglasses. Contacts — they're ordering plenty of boxes."
The Bureau of Labor Statistics reports that about 40 percent of workers have the opportunity to sign up for a health care flexible spending account. FSA contributions can be used to pay for medical, dental and vision expenses not covered by insurance.
Most importantly, FSA contributions are not counted as taxable income. That tax break can put between $1,000 and $2,000 back in the pockets of many households, when they maximize health care FSA contributions.
"There's very few programs out there that give you that immediate and direct increase in income," said Ernie Harris, who works for Bloomington-based Ceridian overseeing the management of thousands of employers' health care expense reimbursement plans. Harris.
Despite hefty tax savings, Harris says many people don't sign up for health care FSAs. People worry they won't accurately forecast how much money to put into an FSA, he said.
"The biggest fear has been that use-it-or-lose-it provision and a lot of folks just can't get past that," he said.
A 2010 survey by the Mercer consulting firm found that only about a third of U.S. employees eligible for a health care FSA signed up for it. The average annual contribution was a little over $1,400, although employers typically allow contributions of up to $5,000.
The deadline for incurring reimbursable expenses is almost always Dec. 31. Some employers give workers a few extra months to spend down funds left in FSA accounts from the previous year. But most companies don't, Harris said.
"Out of all the employers we have, there's only about 40 that provide a grace period," he said.
Last year, Harris said the average forfeiture in the plans administered by Ceridian was $54. The money goes back to employers, who use it to administer benefit programs.
Getting rid of the use-it-or-lose provision of health care FSAs would likely get many more people to sign up for them, Harris said. There's an effort underway to do just that.
Minnesota Rep. Erik Paulsen is sponsoring legislation that would let people roll over health care FSA contributions from year to year.
"You don't know what the future is going to bring," he said. "Consumers guess what they want to set aside and they use it or lose it at the end of the year. It makes more sense to be able to carry over any unused benefit into the future years."
Paulsen, a Republican, represents the 3rd Congressional District in the western Minneapolis suburbs.
Paulsen also wants to undo reimbursement restrictions on over-the-counter medications for headaches, allergies and other everyday maladies. And the congressman wants to overturn a planned $2,500 cap on annual health care FSA contributions. That cap would go into place in 2013. But there's a potential headache that goes with canceling the cap: Congress had approved the FSA contribution limit to increase tax collections and help fund the federal health care overhaul.
Martin Moylan, Minnesota Public Radio News.
- Morning Edition, 12/30/2011, 6:20 a.m.