Flexible Spending Account Reform:Rx for Rising Health Care Costs

Abstract

Employer health care costs are rising at a record rate. This year marks the fourth in a row for double-digit increases. Both employers and employees are struggling to shoulder their respective rising shares of the burden. One instrument already exists that can help employees save for health care costs that insurance does not cover. This instrument, the Section 125 Flexible Spending Account (FSA), however, is hampered by an anachronistic “use it or lose it” rule requiring employees to forfeit unspent amounts in their FSA at year’s end. This article chronicles the genesis of use it or lose it rule, arguing that the regulation must be modified. The article also outlines current Capitol Hill and White House proposals for much-needed reform.