Monday, August 2, 2004

Flexible spending plans may rollover

By Sandra Block
USA Today

Most flexible spending accounts don't cover yoga classes. That's unfortunate, because a lot of people who participate in the plans are very tense.

They're frustrated because their plans refuse to reimburse some of their medical expenses. They're annoyed with plan administrators who demand reams of documents before they'll write a check. But most of all, they're aggravated by the "use it or lose it" rule, which forces them to forfeit any money left in their plans at the end of the year.

Lawmakers, eager to mollify cranky constituents, are starting to address the problem. In May, the House passed a bill that would let employees who participate in health care flexible spending accounts roll over up to $500 in unused funds each year or transfer the money to a health savings account. Health savings accounts, offered by some employers with high-deductible health insurance plans, let workers set up tax-free accounts to pay health care costs.

Health care flexible spending accounts allow you to contribute a set amount from your paycheck every month to cover out-of-pocket medical and dental expenses. The money is exempt from federal, state and payroll taxes. Depending on your tax bracket, using pretax dollars can reduce your medical costs by 30 percent or more.

While about 22 million people have access to flexible spending accounts, only about 7 million enroll in them, according to the Employers Council on Flexible Compensation. The "use it or lose it" provision is the main reason many workers spurn the accounts, benefits experts say.

The rollover bill faces a tougher battle in the Senate. The measure has been attached to legislation related to medical malpractice liability and association health plans, both contentious issues, says Martha Priddy Patterson, director at Deloitte Consulting in Washington, D.C.

In addition, it's an election year and lawmakers are preoccupied with other issues. "My guess is it probably won't happen this year," she says.

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