The U.S. loosened a rule on health flexible spending accounts to allow plan participants to carry over as much as $500 of their balances into a new year.
The Internal Revenue Service and Treasury Department changed the “use-or-lose” stipulation, ending a policy of almost 30 years that required employees to forfeit funds that are set aside for expenses related to health care.
The rule is “a step forward for hard-working Americans who wisely plan for health-care expenses for the coming year,” Treasury Secretary Jacob J. Lew said today in a statement.
Flexible spending arrangements, or FSAs, are a benefit offered by employers that allow workers to pay some medical out-of-pocket expenses with pretax dollars. Typically money in an FSA must be spent within a year to 14 1/2 months or it’s forfeited.
“No longer is there a fear going forward that you could lose the money at the end of the year,” Joe Jackson, chief executive officer at WageWorks Inc. (WAGE), which administers benefit accounts for employers, said in an interview. “The biggest deterrent has been the use-it-or-lose-it proposition.”
About 35 million Americans use FSAs, Jackson said. WageWorks, based in San Mateo, California, rose 2.9 percent today to $51.21 in New York trading.
The U.S. Patient Protection and Affordable Care Act set a $2,500 cap on contributions to FSAs starting in 2013 and prohibited using contributions in them for purchases of over-the-counter drugs without a prescription.
Employers are allowed to give workers a grace period for unused funds and under the new rule can continue to do so. The rule allows FSAs to have either a grace period or a carry-over, though not both.
“This was a good decision by the Treasury Department,” Senator Orrin Hatch, a Utah Republican, said in a statement. “Allowing Americans who have one of these accounts to roll $500 over to the following year just makes sense and will give people more help to pay for out-of-pocket health-care costs.”
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