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CB News Briefs
Treasury Rejects Administrative Change to Use-it or Lose-it Sen. Grassley: Rule doesn't pass the Common Sense Test
Wednesday, Jan. 5, 2005: Treasury Secretary John Snow rejected Senate Finance Chairman Chuck Grassley's request to change the use-it or lose-it rule for flexible spending accounts in a letter released today. Secretary Snow contended the Department did not have sufficient legal authority to administratively change this longstanding rule. He stated that the rule was imposed in order to fulfill the Congressional mandate that cafeteria plans not provide for the deferral of compensation. He did leave a door open for a possible brief administrative grace period at the end of the year and said that Treasury will continue to look for creative solutions.
On the first day of the 109th Congress, Sen. Grassley commented that he was glad the Treasury Department is looking at ways to improve the use-it or lose-it rule, but Im disappointed that the department seems reluctant to make changes to a proposed rule thats never been finalized. That rule doesnt pass the common sense test, and its hurt taxpayers for more than 20 years. He further stated, I want to resolve this issue and Im looking for the best way to do that. Americans need every possible tool to meet their health care expenses. Treasury Response on Use it Or Lose It Rule
ECFC President Bonnie B. Whyte commented, Flexible spending accounts help between 12-18 million workers pay for their health expenses. The end of year rush to spend down an account makes no economic sense and is bad health policy. ECFC has been encouraging a rollover for FSA expenses to allow more intelligent saving for medical expenses. One size does not fit all in the health arena. Cafeteria plans offer choice in health and welfare benefits so each employee can pick the benefits that work best for his or her needs. Consumer-directed health care has a variety of models that should be encouraged, especially those with a proven track record.
Congress will be working on a host of tax, social security and health legislation. Early out of the box for action will be malpractice reform. Last year, a $500 rollover was included in the House-approved version of the malpractice reform measure. Momentum continues to build to do away with the use-or lose-it regulations with both Republicans and Democrats.
However, several hurdles remain in the way. First, any change must go through the tax committees which always bundle a variety of tax breaks and reforms together. Second, there is a revenue impact; as more Americans participate in a flex account, fewer taxes are collected. Thirdly, and this is a new one, Health Savings Account promoters are now opposing a FSA rollover. Why? If more people actually used FSAs, there would be less urgency to buy HSAs!
This discussion has occurred at the highest levels in Washington. In fact, in Secretary Snows letter he stated, Treasury has also concluded that the elimination of the use-it or lose-it rule will impact other important health care priorities of the Congress and this Administration. Treasury economists have estimated that there may be a reduction of up to 10 percent of the number of health savings accounts established if the use-it or lose-it rule is eliminated. HSAs also are used for individuals to pay for medical expenses in a tax advanced manner and unused amounts in an HSA in one year can be used in subsequent years. However amounts cannot be contributed to an HSA unless the HSA owner is participating in a high deductible health plan, an important policy goal which, combined with the financial incentives of the HSA will help reduce overall health care spending. There is no such requirement for a high deductible health plan for those who have an FSA. Consequently we have concerns that allowing rollovers of FSA amounts by eliminating the use it or lose it rule will result in fewer HSAs being established, with significantly fewer high deductible health plans being established and less containment of overall health care spending.
Today's Wall Street Journal (p. D1) has an article covering the subject, Tax Report: Health-Care Benefit Setback .
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