Treasury Modifies "Use-it-or-Lose-it" Rule for Health Care Flexible Spending Accounts
Moments ago, the Department of Treasury issued a press release, IRS Notice 2013-71 and an informational fact sheet announcing a major policy change relating to Health Care Flexible Spending Accounts (HCFSAs) that has many positive implications for all HCFSA constituents – including administrators, employers and participants. The Department of Treasury has modified its HCFSA “use-it-or-lose-it” provision to allow a limited rollover of HCFSA funds.
Details are as follows:
- Effective in plan year 2014, employers that offer HCFSA programs will have the option of allowing participants to roll over up to $500 of unused funds at the end of the plan year.
- Effective immediately, employers that offer HCFSA programs that do not include a grace period will have the option of allowing employees to roll over up to $500 of unused funds at the end of the current 2013 plan year. Grace periods are used by plans when they want to give you an additional 2.5 months to incur claims. Grace periods are not “runnout” or “submission deadline” periods.
For several years, AP Benefit Advisors, LLC and its vendor partners have been deeply involved in industry efforts to educate and convince policymakers to adopt this major new feature for HCFSAs. We are thrilled that these efforts have borne fruit – and believe that this is fantastic news for all HCFSA stakeholders.
From our perspective, the major benefits of this new “rollover” provision include:
- Eliminating the most significant impediment to HCFSA adoption (use-it-or-lose-it) – creating significant upside for FSA adoption growth, which has been limited over the past several years.
- Enhancing healthcare options and offering greater funds protection for HCFSA participants, particularly lower & middle income workers who are highly concerned about cash flow.
- Minimizing risk for constituents with unpredictable healthcare expenses, such as those dealing with chronic conditions that may necessitate high-cost procedures/services with ambiguous timing or medical necessity.
- Curbing wasteful & potentially unnecessary end-of- year spending by HCFSA participants seeking to avoid losing unused funds.
Again, remember these are optional changes and must be adopted by your plan prior to the end of the plan year in question. Please contact your Sales Executive or Account Manager to discuss this.