Before the Patient Protection and Affordable Care Act, there was no federal limit on employees’ annual FSA contributions. Employers, though, typically limit employee contributions to $4,000 or $5,000 a year.

But starting in 2013, contributions that employees can now make to their FSAs under the PPACA will be limited to $2,500. After that, the annual limit will rise directly with increases to the Consumer Price Index.

This change was primarily revenue-driven so that lawmakers could help fund the provision for federal health insurance premium subsidies to uninsured lower-income individuals. By limiting these contributions they were able to raise roughly $13 billion in federal revenue from 2013 through 2019, according to the congressional Joint Committee on Taxation.

According to Amy Bergner, a partner with Mercer LLC, “Any attempt to repeal a provision that costs revenue is far from a slam dunk.”

Gretchen Young, Senior Vice President of Health Policy with the ERISA Industry Committee in Washington, agrees,  “In this era of fiscal restraint, a repeal of the FSA cap would clearly be an uphill battle.”

Stay tuned.

Now bills floating through Congress would lift some restrictions on flexible spending accounts and allow employees to once again set aside pre-tax earnings to pay for out-of-pocket health care expenses. Minnesota Congressman and Republican Erik Paulsen introduced a bill back in February that would allow consumers to use flex accounts for non-prescription medicines as well as remove the $2,500 contribution limit on consumers.

Although this is good news for the millions who have flexible spending accounts, don’t start celebrating yet. Before any changes can be made, according to Representative Paulsen, Congress would have to find the money somewhere else in the budget (about $18 billion), and the bills’ authors have yet to identify where that money will come from.

Before January, OTC medicines were eligible for reimbursement under FSAs and other tax-preferred savings accounts. But the 2010 health care reform law, the Patient Protection and Affordable Care Act, required consumers to get a prescription from their doctor for OTC drugs to be eligible for FSA reimbursement.

“I have had patients complain about not being able to utilize their accounts for these products as they have in the past,” NCPA vice president Brian Caswell, owner of Wolkar Drug in Baxter Springs, Kan., said in a statement. “I support this legislation because it will allow my patients to use their tax-preferred accounts on the products they need at our independent pharmacy — without a prescription.”

An estimated 35 million Americans rely on voluntary contributions of pretax dollars to FSAs and HSAs for their basic health care needs.

In supporting the legislation, NCPA and CHPA are part of a broad coalition including physicians, pharmacies, insurance companies and pharmacy benefit managers, among others.

And where does all that unspent money go? Not in your wallet, but back to the people who really don’t need it…your employers.

So how do you minimize your losses and maximize your flexible spending account?

1. Find out what’s covered.
   Ok, so you may need a prescription for over-the-counter drugs now but there are plenty of other things for which you can get reimbursed. According to Miller, “There are 24,000 products that fit the FSA requirements, from first aid to family planning, and FSAStore sells 4,000 of those products.” Allocating less than last year because of the prescription drug change is a mistake.
2. Know Your Deadline.
   A large majority companies require that you deplete your FSA account by the end of the year although there are some companies that provide you with another 3 month grace period. That means you have until March to take care of yourself and your family with 2010 dollars. Make sure you know what your company does.
3. Turnaround the paperwork ASAP.
   Even if your company provides you with a 3 month extension, the date to file your reimbursement requests may be sooner. Don’t wait! Take a look at your annual receipts. Co-pays or other relevant medical fees are eligible for reimbursement. Get them in…now!
4. Check, double-check, and (okay) triple-check.
   Know your balance and the deductions against it. Treat it like a checking account that you want to get to a zero balance.

Follow these four easy steps, and you won’t be giving your hard-earned money back to your employer.

Back in March, the Medical Flexible Spending Improvement Act (S. 1404) was introduced in the Senate with the goal of allowing employees to withdraw and pay taxes on any remaining funds in their flexible spending accounts at the end of the year. This would end the controversial “use it or lose it” issue that has caused many people to try and fit in dental visits or buy a pair of eyeglasses in order to deplete their FSA balance by December.

Although many consumers seem to make good use of their FSAs throughout the year, it’s recognized that some logical adjustments need to be made on how they are regulated. For instance, it can be difficult to guess in advance how much money it makes sense to set aside for health care in a given year, and unlike Health Savings Accounts (or HSAs), there’s currently no opportunity to roll over funds into the next year.

According to Maryland Senator Ben Cardin, “It is time to modernize FSAs to eliminate the burdensome ‘use it or lose it’ rule. It is both fair and sound health policy to allow FSA participants to cash-out remaining funds at the end of the plan year rather than forfeiting the balance to their employer.”

Save Flexible Spending Plans, an advocacy group for FSAs, is encouraging Americans to “remind Congress flexible spending accounts are part of the solution, not part of the problem.” Stay tuned!

According to Dr. Douglas Henley of the American Academy of Physicians, “It’s going to create a lot of new obstacles for patients and their doctors.”

For the person who uses his/her flex-spending account to buy those medications, it’s now going to cost more.  Starting next year, patients will have an increased cost of going to the doctor to write the prescription and then subsequently going to the pharmacy to have it filled…all adding to the the overall cost of the medications.

This just seems to be an unnecessary hassle and burden,” Henley said.

Another change that baffles the medical community is starting January 1, flex spending accounts will no longer recognize breast feeding as a form of medical care. For many years now, breast-feeding mothers received a tax break when purchasing supplies through their health flex spending account.

According to the new IRS tax code, breast pumps and accessories are no longer qualified expenses for employer flex spending accounts.

For many medical experts, breast-feeding is more than just a method for feeding children and breast milk is more than just food.  It is a key element to strengthening a child’s immunity system.

These changes as well as other changes that take effect in 2013 are expected to decrease costs, saving the federal government money. The savings would be used to help insure the uninsured,  a key goal of health reform. Not affected in this change are durable medical supplies, such as crutches, bandages or braces.  The changes  are slated for the start of the new year and will only affect people with flex spending (FSA) or health savings accounts (HSA), which use tax deferred money for qualified medical expenses. For those who don’t have one FSAs or HSAs, or pay out of pocket, nothing changes.

There may be additional changes for reimbursement through flexible spending, depending on the insurance provider.

Additional information:
Check on flex spending account changes through the FSAFeds.com website.

Flexible Spending Account Rules Change for 2011 Affecting Over-the-Counter Medications

Too soon to start thinking about how to deal with your flexible spending accounts (FSAs) in 2011?  Not exactly. How you use funds that you set aside in these special health savings accounts will be changing in several key ways.

Under the new healthcare reform law, people whose employers offer these medical reimbursement plans will be required to get a doctor’s prescription for non- prescription drugs if they plan to use their FSA funds.

The new health savings account rules will not be effective until Jan. 1, but if you put money into an FSA account, it’s worth planning now.  Since some doctors may require an office visit to get the qualifying prescription, you should consider asking for the prescription during a planned visit, says Helen Darling, president of the National Business Group on Health, which advises large firms on handling employee health expenses.

But what should you do if you have no plans to see the doctor soon? Darling suggests asking the doctor to write a prescription based on your most recent visit. Understand, though, there may be a fee for completing the paperwork but it will probably be much smaller than the cost of an office visit.

Before you ask for the prescription, make sure you check with the person who handles FSAs at your workplace to find exactly what these new medical savings account rules mean and what your employer needs, suggests Mark Berggren, an attorney at a benefits consulting firm Hewitt Associates. It’s likely that many employers will probably accept a prescription, good for a year, for a qualifying drug and attach to your file.

Special Note: If you use a debit card to access your FSA funds for medical expenses, it’s possible that you may not be able to use the card for non-prescription drugs, even with a doctor’s prescription on file. Instead, you may have to pay out of pocket and then submit a claim form to get your reimbursement.

If you’re not sure about the new flex spending account rules and their changes, ask your employer to spell them out, specifically how they will effect your plan.

Another big change on tap for 2013 is a cap on your annual FSA allocations. Currently, there is no cap, though many firms do limit allocations to $5,000. If you typically allocate more to an FSA than $2,500 it’s probably best  to anticipate the medical expenses and use your FSA account to pay for some of those expenses in 2011 or 2012. For instance, if you suspect braces in your son or daughter’s future, you may want to visit the orthodontist sooner than later and take care of those braces before the cap is effective in the new flex spending account rules.

With these flexible spending account rules changes just around the corner, it may be smart to stock up on some of the over-the-counter medications that your family uses with your current flexible savings account funds…while you still can.

According to the Daily Kos, “The Joint Committee on Taxation told Senate leaders recently they could collect $68.6 billion over 10 years by abolishing the accounts, along with separate ones in which employers contribute money for workers to use for health care expenses. Eliminating both types of accounts would pay for four percent or more of the estimated $1 trillion to $1.5 trillion cost of expanding coverage to the 46 million uninsured.”

The search for revenue is revisiting the debate over FSAs, HSAs and other medical savings accounts. Sparking controversy from some healthcare critics, they say these accounts are actually tax shelters for the rich and encourages spending on unnecessary or otherwise frivolous expenses. On the other hand, proponents of these plans say that flexible spending account programs help people pay for high medical expenses that aren’t covered by insurance.

The Daily Koz reports the debate is further complicated by the fact that “the government doesn’t track even basic details on how the accounts are used, how much money is involved and what happens to the unspent funds. The only data available come from the industry-the companies that administer the programs for employers. Even that information is incomplete.”

According to a July 16,2009, Bloomberg news report “The House Ways and Means Committee is proposing to prohibit reimbursements for over-the-counter drug purchases using pretax health-spending plans.

The proposed limits, affecting employer-sponsored flexible spending accounts and privately owned health savings accounts, were added to a 1,018-page bill aimed at overhauling the health- care system. ”

The proposed limit would raise $8.2 billion over a decade, according to official estimates. It would supplement a proposal to increase taxes on the highest-earning Americans, including a 5.4 percent surtax on couples who earn more than $1 million.”

Stay tuned…

A critical component to these consumer-driven health plans is the medical savings account (MSA), or healthcare savings account as it is commonly referred to. These medical savings accounts are  savings plans whereby pre-tax dollars are used for health care expenses, providing an incentive for reduced use of health care services.

What are your Medical Savings Account Choices?

Currently, there are three different types of medical savings accounts to help you save for health care costs,

• Flexible Spending Account (FSA)
• Health Reimbursement Arrangements (HRA)
• Health Savings Accounts (HSA)

The first of these, the Flexible Spending Account (FSA), is also referred to as a Section 125 plan or “cafeteria plan.” This plan allows participants to put pre-tax money into the account each year to cover their health insurance deductibles, co-payments, dental care and other medical expenses. Cafeteria plan money cannot accumulate from year to year, unfortunately, so it needs to be depleted at the end of the year or it will be returned to the employer.

The second type of medical savings account is a Health Reimbursement Arrangement (HRA). It is similar to an FSA but the employer contributes to the account instead of the employee. The employer makes contributions contingent on the employee participating in designated health and wellness programs. In June 2002 it was updated to allow funds to rollover from year to year, but it cannot be rolled over from employer to employer so if you change employers, you lose the accrued benefit.

The last and most recently created plan is the Health Savings Account (HSA). This plan provides for employees with high-deductible health insurance plans to set aside and invest money to use to pay the deductibles or other healthcare costs in the future. These health savings accounts are designed to put healthcare decisions into the hands of the employees. These plans are also portable so they move with you when you change employers and they can be rolled over from year to year. They can also operate as a type of IRA and accumulate assets to be used upon retirement. Similar rules apply regarding taxation policy and penalties incurred upon early withdrawal of funds.

For even more information on the difference between these various consumer-driven health spending accounts, check out “Health Spending Accounts – A Comparison.” Also, if you’re looking for flexible spending account rules and guidelines, you can find that information in “Other Flexible Spending Account Rules & Guidelines to Consider.”