Despite Veto Threat, House Approves Changes to Use It or Lose It Rule

Defying a presidential veto threat, the House of Representatives on Thursday approved legislation that would ease a 28-year-old Internal Revenue Service rule that requires forfeiture of unused flexible spending account balances and eliminates restrictions on using FSAs and health savings accounts to pay for over-the-counter medications.


Under the measure, approved on a 270-146 vote, employers could amend their FSAs to allow employees to withdraw as taxable cash up to $500 in unused balances remaining at the end of the plan year or at the end of an FSA grace period, if an employer has that feature. In addition, H.R. 436 would overturn a health care reform law provision that bars FSA reimbursement of OTC medications without a prescription and imposes a 20% federal tax on HSA distributions for OTC medications obtained without a prescription.

Senate approval ‘unlikely’


President Barack Obama, though, may not have an opportunity to carry out his veto threat as the Senate may not even take up the proposal, some benefit observers say.“I don’t think the Senate will act,” said J.D. Piro, a senior vp at Aon Hewitt in Norwalk, Conn.Bundling the FSA provisions with the repeal of the excise taxes on medical devices makes the bill’s chances of winning Senate approval “very unlikely,” said Chantel Sheaks, a principal with Buck Consultants L.L.C. in Washington.Giving FSA participants the ability to receive up to $500 of unused balances would have only a modest impact on boosting plan participation and would be somewhat administratively burdensome on employers, Mr. Piro said.


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