NCPA - National Center for Policy Analysis

Improving Flexible Spending Accounts

October 7, 1999

Congress seems bent on passing some kind of managed-care reform legislation this session, but some observers believe it's missing a chance to properly enhance Flexible Spending Accounts.

FSAs let employers or employees contribute pretax money to accounts that can be used to pay out-of-pocket medical expenses, insurance copayments and deductibles and child care.

A 1997 survey showed 85 percent of employers offered FSAs, with an average of $744 designated for health care accounts and $136 left over in the account at year's end. Any money left in an FSA at the end of the year reverts to the employer, so employees go on a spending spree at year end in order not to lose the money.

A bill offered by Sen. Robert Bennet (R-Utah) would allow up to $500 remaining in an FSA to be rolled over to the next year, but analysts believe any money left should stay with the employee. The benefits would be significant.

  • Wasteful year-end spending would cease because the use-it-or-lose-it provision would no longer be in effect.
  • Many employees would choose less expensive, high-deductible insurance policies and put the premium savings in their FSA.
  • Reformed FSAs would enhance health insurance portability, because workers who could take their account-balances with them would be more inclined to keep their insurance current until they're employed again.
  • FSAs would reinforce the doctor-patient relationship, removing insurers from most medical transactions by creating a way for patients to pay cash for most of their health care needs.

This small change in FSAs, analysts believe, could solve a big health insurance problem.

Source: Robert E. Moffit (Heritage Foundation) and Merrill Matthews, Jr. (USA Radio Network), "Make Flexible Spending Accounts Flexible," Investor's Business Daily, October 6, 1999.

 

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