The Department of the Treasury and the Internal Revenue Service recently announced that they have updated the regulations regarding health flexible spending arrangements. Under the previous rule, workers would lose funds that they didn't spend on medical services within a year. The so-called use-it-or-lose-it rule has now been changed to allow people to carry a maximum of $500 from one year to the next. Treasury Secretary Jacob Lew believes the new structure is an improvement over the old model.
"Across the administration, we are always looking for ways to provide added flexibility and commonsense solutions to how people pay for their health care. Today's announcement is a step forward for hardworking Americans who wisely plan for health care expenses for the coming year," Lew said in a statement.
The federal agencies were motivated to update their policy based on recent feedback from the public. Both groups cited the fact that many consumers claimed that they were worried about covering future medical expenses. The hope is that by enabling rollover funding, workers will have the means to pay all of their health care bills without experiencing any financial difficulties.
The Los Angeles Times reports that this regulation is entirely voluntary for employers. While enterprises are encouraged to start adhering to the new FSA rule this year, it may be difficult to do so because many employee benefits programs are already in effect. Laura Baker, a principal at Mercer, explained to the news source that it could be over a year before the changes start to have an impact on workers.
"Starting Jan. 1, 2015, I think there will be greater uptake simply because of the timing," Baker said.
The flexible approach will be beneficial for people who participate in FSA programs. A recent Mercer study shows that the average professional contributes $1,484 to his or her accounts and approximately 4 percent is forfeited annually. By allowing employees to roll $500 over per year, the Treasury and IRS are helping to ensure that no one loses money by having an FSA.
The update to the federal policy should have a positive impact on the workforce in the near future. For now, the move has been welcomed with open arms by some parties, including Sen. Orrin Hatch (R-Utah), who believes this is a simple and beneficial strategy.
"Allowing Americans who have one of these accounts to roll $500 over to the following year just makes sense," Hatch said, according to the Los Angeles Times