In light of the IRS move last week to offer a $500-maximum rollover for Flexible Spending Accounts from year to year, experts are urging health plan administrators to evaluate their options and be sure to communicate any changes clearly to employees.
Employers, in a move many had pushed for at the Treasury Department for some time, may now choose to allow employees to rollover as much as $500 in an FSA, starting next year, or else they can stick with the standard two-and-a-half-months grace period for the entire FSA balance. Joe Jackson, CEO of WageWorks, says his company, one of those that fought hard for the change, works with thousands of employers and, based on the interest he’s heard voiced, he thinks plenty will make the switch.
“I think what’s going to happen over time is employers will eliminate the grace period and switch to the carry-over,” Jackson tells EBN. “That has no effect on run-out. Really the grace period was set up as kind of a halfway step to give people more time to spend their dollars in a given plan year.”
Of course, employers may have to scramble to take advantage of the change, announced Oct. 31, the middle of open enrollment season. Jaime Spriggs, CEO of ConnectorYourCare, which helps administer FSAs as well as HRAs and HSAs, says in some cases, an “extraordinary” effort may be required to get on board for this benefits cycle.
“It was done really at the last possible moment to scurry and get something this year,” Spriggs says. “Most people already have their communications either in print or online, so it’ll be a struggle. They’ll have to handle it through an email or intranet outside of their existing product, or some other mechanism.”
Spriggs adds that employers might face a tough call in whether or not to switch over this year, since the change applies immediately, and some participants may have already made spending plans. “So for 2013 you really need to analyze the data and see how many employees have balances over $500 who were really counting on the grace period,” he says.
Jackson says FSAs are “really used a lot by the middle class to help pay for those out-of-pocket health, vision and dental expenses throughout the year,” so rolling funds over can allow for more flexibility. The average salary of an FSA account holder is $55,000 to $60,000 a year, he says, and the funds really help those workers. He hopes, eventually, that people will be able to rollover a larger amount.
“Trust me, in the discussions with Treasury, $500 wasn’t my limit,” Jackson says. “In a perfect world, we’d like people to roll over the entire amount, but this was an important first step to get through to people and give them some confidence and control. Would we like the $500 limit to be increased over time? Sure. The $2,500 cap that’s in place now is indexed for inflation going forward; we think that will increase as well. But I don’t want to underplay the fact that this was significant first step that we’re very appreciative of.”
Employees could well be appreciative, too, and plan administrators should be ready for that. The use-it-or-lose-it risk had long been cited by workers at the main reason not to join an FSA. With that gone, Spriggs says, “having a health account just makes more sense than it ever has” in the face of rising costs and responsibilities on the part of the consumer.
“Employees should be flocking to an FSA,” Spriggs says. “There’s no reason not to have a $500 FSA at this point in time.”
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