Human Resources News & Insights

House committee passes 2 bills to ease FSA restrictions

The House Ways and Means Committee just passed two bills that would eliminate two controversial restrictions on flexible spending accounts. 

‘Use-it-or-lose-it”

The first bill, the Medical FSA Improvement Act of 2011, was passed by the committee by a 23-6 vote. It would amend the “use-it-or-lose-it” rule governing FSAs that requires employees to forfeit to their employers any leftover balance in a medical flexible spending account at the end of the plan year (or grace period, should their employers offer one).

The new bill would allow employees to withdraw up to $500 in taxable cash at the end of the plan year (or grace period). And the withdrawal would have to be made within seven months of the end of the plan year.

Earlier we reported that the IRS announced it would consider “modifying” the 28-year-old “use-it-or-lose-it” rule because the new $2,500 cap on FSA contributions that kicks next year limits individuals’ ability to defer large amounts of tax-free compensation into an FSA.

OTC rule

The second bill, the Restoring Access to Medication Act, passed the committee by a 24-9 vote. It would overturn the rule that says FSAs can’t be used to reimburse expenses for over-the-counter drugs that were not prescribed by a physician, which was included in the healthcare reform law.

As we reported last year, a cost-analysis by the Consumer Healthcare Products Association found 50 million unnecessary visits to doctors could be eliminated and billions saved if the unpopular reform mandate was overturned.

The full House is expected to take up both bills next week.

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