3
It's 'use it or lose it' time for your FSA
Photo illustration showing a ring of $20 bills, a bottle of prescription drugs and a stethoscope.
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
TEXT OF STORY
Kai Ryssdal: There's always a flurry of financial activity this time of year. Most of it geared around the tax code. A lot of people sell stocks or mutual funds to minimize their bill come April 15th. And those of us with balances left in our flexible spending accounts have to use it or lose it. Many companies offer FSAs. They let you sock away money tax-free to pay for health-care expenses. But an awful lot of people find themselves with money left over this time of year. Including our own Amy Scott, who reports now on the big business of the FSA rush.
AMY SCOTT: I found Randy Morgan perusing aviator sunglasses at Lenscrafters this afternoon. He was looking for a way to use up the last $250 in his flexible spending account.
RANDY MORGAN: Actually, I had almost $800 leftover up till yesterday. But then I started purchasing some over-the-counter things that I know I'll be needing.
No judgment here.
I overestimated my out-of-pocket expenses this year and wound up buying a pair of last-minute prescription shades myself, rather than lose the money.
Unused cash goes back to your employer, by the way, but they have to spend it on benefits.
Anyway, Lenscrafters says people like me and Randy Morgan make up a significant chunk of their business this time of year.
Seth Scharberg is general manager at my local branch.
SETH SCHARBERG: And we're making it easy for customers to use those flex-spending dollars with our current promotions of 30 percent off a complete pair. We've got a great prescription sun offer for them.
But is this really a good way to make health care decisions? Critics of the use-it-or-lose-it system say it leads to wasteful spending.
John Hickman is with the Employers Council on Flexible Compensation. The group's members administer flexible spending programs. He says the vast majority of people use up their funds well before the end of the year.
JOHN HICKMAN: Most people use up the flexible spending account election on things like deductibles and co-insurance and co-payments.
Not on $100 worth of Tylenol on New Year's Eve. But soon people might find it harder to use up their unclaimed FSA funds. The House version of the health care reform bill won't allow spending on over-the-counter drugs. The Senate version requires a doctor's note. Both bills reduce the maximum amount you can save from an average $4,500 to $2,500.
In New York, I'm Amy Scott for Marketplace.
Amy, I appreciated your story and the rush to "use it or lose it", yet I was have been managing my FSA with the understanding the 2009 provision to provide an extention to March 15, 2010 vs. Decemeber 31, 2009. I hope I did not get bad information. If I did then I lost it. This whole process feels like a game of chance. Two years I was way under and this year way over.
Cat, you have not been duped. The IRS requires the "use it or lose it" rule, and they do so because the law, passed by Congress, requires it. The money stays with your employer (it is not really "going back"). The reason for the rule is that the tax deduction is for insurance. If you don't have "use it or lose it" then it does not resemble insurance sufficiently to fit within the definition for purposes of having the tax exclusion.
'Unused cash goes back to your employer, by the way, but they have to spend it on benefits.'
Really? My employer always told me that the IRS required the 'lose it' part of use or lose it for FSA's. No one really had a good explanation why the IRS got the money back. I didn't realize it comes back to my employer.
Have I been duped by my employer?
