In the week since the IRS issued guidance allowing up to $500 in a Flexible Spending Account to roll over from year to year, plan administrators have worked to adapt their offerings and prepare for the future, but unforeseen kinks in savings accounts adjustments – as well as an ongoing push in Congress to fight an Affordable Care Act change to FSAs’ use – could throw benefits pros and plan participants for a loop.
Only those in high-deductible health plans can elect to include a Health Savings Account as part of their insurance, so usually a participant won’t have both an HSA and an FSA, unless the latter is directed at “limited-scope benefits,” such as vision or dental. And originally, when the rules allowed for a two-and-a-half-month grace period on FSA expenses into the new year, that would preclude HSA contributions for that period. Could it now block them for an entire year if funds are carried over?
“You just can’t slap the carry-over feature onto your plan without considering how it’s going to affect the other benefits you offer,” says Susan Nash, chair of law firm McDermott, Will & Emery’s health and welfare plan affinity group. Nash says “there’s no discussion of this issue in the [new] guidance,” but it’s possible that rolling over a single FSA dollar will stymie HSA contributions for the entire year.
“And the reason is there’s a Health Savings Account rule that says you are not allowed to be covered under other health plan coverage besides an HDHP, apart from certain limited exceptions,” Nash says. “So we are speculating that the IRS will come up with some guidance or some FAQs that follows that same guidance they had with respect to the grace period, because essentially you’re able to submit FSA expenses for the entire year two, even if you didn’t elect to make a contribution for that year.”
Complications could arise for the same reason for those who try to transition from an FSA to HSA, or vice-versa.
Despite these and other issues, Steve Wojcik, vice president of public policy for the National Business Group on Health, joins those applauding the new rules. Participants are being asked to take on greater and greater responsibility and cost in regards to their health, he says, and FSAs are a terrific to help them save and spend.
“Health care costs keep going up. People are being asked to pay more and more. It’s good to be able to use tax-free dollars – that reduce your taxable income – to pay for it,” Wojcik says.
Asked if he thinks the $500 change could be a first step and use-it-or-lose-it could disappear entirely, Wojcik endorsed the idea, but didn’t seem overly optimistic about it happening anytime soon. Participants might eventually be able to roll over their entire balance – as in an HSA – but probably not in the near future.
“I would hope [we’d eventually eliminate use-it-or-lose-it entirely]. We’re not so sure, but we’re grateful that we have a start,” he says. “One of the things they’re concerned with is unlimited amounts of money being put aside on a tax-free basis, which brings up deferred compensation issues, and then also lost federal tax revenues. But both of those are limited by the $2,500 cap on FSAs … so I don’t know why they wouldn’t put it forward.”
Meanwhile, something that is being put forward is a proposed legislative change to restore how FSAs and HSAs can be spent by consumers. Under ACA, the health accounts can only be used to pay for over-the-counter medications after the patient has visited a physician and obtained a prescription, a step advocates call burdensome and unnecessary. Bipartisan bills in both houses would restore OTCs to their previous buy-at-will status.
Sens. Mary Landrieu, D-La., and Pat Roberts, R-Kan., this week introduced the Restoring Access to Medication Act, which mirrors legislation introduced earlier this year by Reps. Lynn Jenkins, R-Kan., and John Barrow, D-Ga. The bills are endorsed by the National Association of Chain Drug Stores and the National Community Pharmacists Association, parts of the Health Choices Coalition, which voiced its approval in a letter to the bills’ sponsors.
"Consumers depend on OTC medicines as a first line of defense for their families' health care needs," the coalition wrote. "OTC medicines provide Americans with effective, affordable, convenient and accessible means to address their health care needs. These medicines save consumers billions of dollars annually through reducing unnecessary doctors' visits, less time lost from work and the cost advantage of OTC medicines."
The group added: "We believe this restriction on the use of tax-preferred accounts for the purchase of OTC medicines has resulted in unintended consequences to both physicians and patients."
