Rules eased to allow carryover on health spending accounts

WASHINGTON – Workers who take advantage of special tax-free accounts to pay out-of-pocket medical expenses could soon be allowed to carry over up to $500 from one year to the next.

For nearly 30 years, employees who were eligible to use the accounts had to forfeit any unspent money at the end of the year.

A new rule will now permit employers to let plan participants roll over up to $500, the Treasury Department said Thursday.

Employers who sponsor the plans, however, are not required to offer the option.

Some plan sponsors may be eligible to start letting workers carry over the money at the end of this year, Treasury said in the announcement. Others may have to wait until next year to start offering the feature.

“Today’s announcement is a step forward for hard-working Americans who wisely plan for health care expenses for the coming year,” Treasury Secretary Jacob Lew said.

The accounts, known as flexible spending accounts, allow employees to contribute up to $2,500 a year directly from their pay, before taxes are deducted. The accounts can then be used to pay certain medical expenses not covered by insurance, including co-pays.

Treasury says an estimated 14 million people use the accounts.

Employees generally decide how much to set aside in the accounts before the start of the year. But it can be difficult to estimate medical expenses a year in advance, discouraging some people from taking advantage of the accounts.

Sen. Orrin Hatch, R-Utah, said: “Allowing Americans who have one of these accounts to roll $500 over to the following year just makes sense and will give people more help to pay for out-of-pocket health care costs.

“I’d like to see more done to expand these critical accounts that empower the individual to make informed health care decisions using money they saved,” Hatch said.

Some plans currently provide workers with a grace period at the start of the year to spend the money in the accounts, up to 2 1/2 months. The new rule says plans can offer either a grace period or the $500 rollover, but they cannot offer both.