Human Capital & Careers

House Approves Health-Account Carryovers

Bill would ease restrictions that now require employees with flexible spending accounts to ''use it or lose it'' every year.
Stephen TaubMay 17, 2004

The House of Representatives has passed a bill allowing employees to carry over up to $500 of unused money in flexible spending accounts (FSAs) from year to year.

FSAs enable workers to withhold pre-tax funds from their salary, enabling them to immediately save money on their taxes. They can use that account for co-payments, deductibles, and other health care-related expenses not covered by their insurance plan.

Under the current FSA system, however, any money not used by the end of the year is forfeited to the employer. This is the biggest reason why employees don’t sign up for these accounts, according to the Associated Press, which noted that only 7 million of 37 million eligible employees have signed up. Altogether, 16 percent of U.S. companies offer these accounts.

The AP also noted that the use-it-or-lose-it feature also encourages employees to go through a year-end ritual of buying things like eyeglasses that they don’t need or undergoing tests and procedures that are not necessary just to spend the money.

Under the bill, plan participants would be able to carry over up to $500 in their account to the next year or invest in a health savings account created by last year’s Medicare law, said the report.

The new legislation was approved 273-152 by the House. The rollover provision was included in the House-passed version of the Medicare bill but was dropped in negotiations with the Senate, according to the AP.

Democrats reportedly support rollovers but oppose allowing employees to invest that money in the new health savings accounts, arguing that they are tax shelters for the wealthy. Health savings accounts are available to people with high-deductible insurance coverage; the money can be invested and spent tax free, and the earnings also grow free of tax.

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