FSA rollovers: Are they worth it?

Recently, the Treasury Department announced it will allow employees enrolled in flexible spending accounts to roll over $500 of their balance into the next plan year. Although it’s a little late to adopt the new rule to allow rollovers into 2014 — it’s not too early to think about what you’ll do to allow rollovers into 2015. Surveys show employers are open to allowing rollovers next year; we suggest plan sponsors think twice.

We have two main reasons for suggesting employers pause before they push the FSA rollover button.

1. You’ll be sending an even murkier message than you do today.

Employees hate the “use it or lose it” concept attached to FSAs. It doesn’t feel very nice, and feels worse when employees learn that their own employer keeps any leftover balances.

While the use-it-or-lose-it catch phrase is a helpful headline, today’s FSA message is unclear: “Carefully estimate your health care expenses because any amount unspent by December 31 is lost. Due to the tax saving features, the IRS mandates that your balance is used for health care expenses this calendar year. You can submit your expenses through March 31 for expenses incurred through December 31.”

All the same, savvy employees — baited by tax savings — carefully calculated expenses, faxed receipts, used FSA debit cards and memorized a changing list of eligible expenses. Any FSA fan will tell you that whatever your tax rate — the tax savings equal real money. As limits have come down, though, maybe the tax savings bait has also diminished.

Perhaps the rollover feature is aimed at the uninitiated—those who’ve been scared off by that use-it-or-lose-it description. Still, picture delivering this mouthful at next year’s open enrollment webinar: “Carefully calculate your health care expenses. Money unspent by December 31 is lost, except for $500 that can rollover into next year. Receipts must be received by our vendor by December 31. To offer you the rollover features, we can no longer allow the administrative grace-period through March 31.”

That’s the general message; it’s the same for fans and for the uninitiated. Arguably, there’s room for more precision. Fans need a “change” message; the uninitiated, a “sell” message. It’s possible that you might actually get a few employees to try out the FSA with the rollover as an enticement. And, no doubt, it’s a noble goal to entice more employees to try their hand at a critical skill — managing a pot of money just for health care expenses. But, there’s another reason to think carefully about including this option.

2. You may cannibalize the investment you’ve made in your account-based health plan communications.

Whether you have a health plan tied to an HRA or an HSA, you’ve spent a good chunk of time explaining the features of this account. You’ve addressed rollover features. You’ve been clear on eligible expenses. You’ve tried hard to explain the process of reimbursement or the advantages of growing your account balance for a major expense. Maybe you’ve sold the idea of portability in the HSA. In short, you’ve spent energy and resources to get employees into your account-based plan. Is it worth diverting employee attention away from this plan? What do you gain? What do you put at risk?

Your health plan strategy today and over the next few years should help you decide whether to or not to add the rollover feature. If you do adopt the new rules:

• Ask administrative partners to send personalized messages. Providing relevant guidance doesn’t have to be complicated. For instance, prompts like “Why haven’t you enrolled in the past?” or “Have you ever ‘lost’ part of your balance?” are two good places to get started.
• Decide how much attention to give this change. Because of the complexity of the message, it could crowd out more important messages. Be clear about your strategic goals when you put together your communication.
• Update your FAQs, including a side-by-side comparison of the distinct features of all the accounts you offer.

In the zaniness of completing your enrollment period, this new rule may have seemed like a no-brainer. Maybe in the end, it’s the right move for your employees. But always consider the confusion that any change brings. With a limited window for benefits — is the FSA what you want in focus?
Liz Webler Rowell is a senior consultant at Benz Communications, an HR and benefits communication strategy firm. She joined Benz after spending eight years at Hewitt Associates.