Flexible Spending Accounts Becoming More Flexible

A little extra time is something everyone seems to be after. And in the case of flexible spending accounts, employees sought more time to spend their money.

 

In recognition of that truth, the U.S. Internal Revenue Service in 2013 gave employers the option to allow employees an extra 2½ months to spend the maximum amount of $2,550 that could be saved in an FSA. 

 

But that wasn’t enough to persuade employees that the tax-free account for health care-related expenses was worth their effort.

 

“The grace period didn’t really fix the problem,” said Renee Lutzen, senior director of health care at  Visa Inc. “There was still this rush to spend the money at the end of the year to make sure that they didn’t lose their funds.”

 

To increase employee participation in an FSA, the IRS introduced a carryover option in 2013 that allows employers the option to offer or allow up to $500 of unused money to be carried over to the next year and used for eligible health care expenses, Lutzen said.

 

And it seems to have done the trick.   

 

A recent survey from Visa and WageWorks, a provider of tax-advantaged consumer-directed health, commuter and employee benefit plans in the U.S., found 60 percent of employers offered a carryover option with their FSAs compared with 49 percent in 2014 and 30 percent in 2013.

 

For comparison, the number of employers offering a grace period has decreased to 23 percent in 2015 from 57 percent in 2013. 

 

“We believe that FSAs can be an extremely helpful benefit for employees, especially since employees have access to the entire amount of their health care election throughout the year,” said Shari Davidson, vice president of the National Business Group on Health. “This enables employees to budget large prescription costs or other expected expenses. As for the company, in many cases, the FSA plan pays for itself with tax savings, and so for them, it’s a win-win.”

The carryover directly addresses employees’ biggest concern: losing hard-earned dollars.

 

“The benefit to that from an employee’s perspective is that it mitigates that fear of losing unspent dollars,” Lutzen said. “Visa has done previous research on this as well that the biggest deterrent to employees signing up for an FSA is the fear of losing money at the end of the year. The concept of a carryover allows them to try the FSA and contribute up to $500 and really minimize the risk of losing any money at the end of the year.”

 

Employees have responded positively. According to the survey, employers that began offering an FSA saw an 8 percent increase in employee participation.