Feds To Ease Restrictions On Flexible Spending Accounts

By Julie Rovner

Published November 1, 2013 at 5:19 PM EDT

Where did the money for those glasses come from?

The Treasury Department is scrapping the rule that requires people to use or lose the money they set aside each year in accounts to cover health care expenses that are otherwise unreimbursed.

Instead, the department plans to allow people to carry over up to $500 of unused money to the following year, at their employer's discretion. That could start as early as the end of this year.

An estimated 14 million families use these flexible spending accounts, or FSAs. Tied usually to employment at big companies, the accounts let people put aside money before taxes to help pay medical expenses insurance doesn't cover.

Deductibles and copayments qualify, but so do things like eyeglasses and dental expenses.

The 2010 health law scaled back both the amount of money people could put in the plans and the types of things that could be reimbursed, in an effort to raise money to pay for the measure.

But now, after taking note of public comment, the Treasury Department says it wants to make the accounts more accessible to more people.

"An overwhelming majority of feedback from individual, employers, and others requested that the use-or-lose rule for health FSA's be modified," the department said. Commenters noted that people have a hard time estimating exactly how much they will spend on medical care at the beginning of the year, when they have to make a determination how much to put in the account.

The prospect of losing unspent funds tends to deter those who earn less, in particular. Some people who find themselves with unspent funds toward the end of the year often wind up going on medical spending sprees to avoid a loss of funds, buying extra eyeglasses or frantically trying to schedule holiday medical appointments.

Among those praising the rules was Sen. Orrin Hatch, R-Utah. He is one of several members of Congress who have introduced bills to roll back some of the new restrictions on FSA's.

But the changes were still not enough for Hatch. "I'd like to see more done to expand these critical accounts that employer the individual to make informed health care decisions using money they saved," he said.