[Congressional Record Volume 151, Number 12 (Tuesday, February 8, 2005)]
[Senate]
[Page S1119]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DeMINT (for himself, Mr. Salazar, and Mr. Ensign):
  S. 309. A bill to amend the Internal Revenue Code of 1986 to provide 
for the disposition of unused health benefits in cafeteria plans and 
flexible spending arrangements; to the Committee on Finance.
  Mr. DeMINT. Mr. President, I rise today to offer a bill that would 
update flexible spending arrangements, known as FSAs, to allow up to 
$500 of unused health benefits to be carried forward to next year's FSA 
or transferred to a health savings account.
  Flexible spending arrangements allow employees to set aside money in 
an employer-established benefit plan that can be used on a tax-free 
basis to meet their out-of-pocket health care expenses during the year. 
However, under current law, any money remaining in the FSA at the end 
of the year must be returned to the employer.
  Nearly 37 million private sector employees have access to an FSA. 
However, only 18 percent of eligible employees take advantage of the 
pretax health care spending provided by flexible spending arrangements. 
Many employees cite the fear of forfeiting unused funds as the primary 
reason why they elect not to participate in an FSA.
  This use-it-or-lose-it rule does more, though, than discourage 
widespread participation. It can also lead to perverse incentives such 
as encouraging people to spend money on health care products and 
services that they do not necessarily need. In other words, at the end 
of the year, if there is money left in the account, the employee's 
incentive is to go out and get an extra pair of sunglasses or whatever 
it is and spend that money, and that in turn drives up demand and the 
price of health care for everybody.
  The bill I am introducing today provides greater flexibility and 
consumer choice. The bill would allow up to $500 of unused funds at the 
end of the year to be carried forward in that flexible spending 
arrangement for use in the next year, or that employee could begin a 
new HSA, a health savings account, and put up to $500 into that health 
savings account.
  I believe this bill will encourage greater participation in flexible 
spending arrangements and, to a lesser extent, participation in health 
savings account benefit plans. The Joint Committee on Taxation 
estimates that approximately 76 percent of current FSA participants 
will take advantage of the rollover option each year.
  Through this legislation, we can expand access to health care for 
millions of Americans by making it easier for them to save for their 
health care costs. This bill would also reduce end-of-the-year excess 
spending and overuse of health care services, allowing FSA participants 
to benefit from the prudent use of their health care resources.
  I am grateful to Senators Salazar and Ensign who have joined me as 
original cosponsors of this bill. They understand that reducing health 
costs and increasing access to health care are worthy goals that we 
should all support.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 309

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. DISPOSITION OF UNUSED HEALTH BENEFITS IN CAFETERIA 
                   PLANS AND FLEXIBLE SPENDING ARRANGEMENTS.

       (a) In General.--Section 125 of the Internal Revenue Code 
     of 1986 (relating to cafeteria plans) is amended by 
     redesignating subsections (h) and (i) as subsections (i) and 
     (j), respectively, and by inserting after subsection (g) the 
     following:
       ``(h) Contributions of Certain Unused Health Benefits.--
       ``(1) In general.--For purposes of this title, a plan or 
     other arrangement shall not fail to be treated as a cafeteria 
     plan solely because qualified benefits under such plan 
     include a health flexible spending arrangement under which 
     not more than $500 of unused health benefits may be--
       ``(A) carried forward to the succeeding plan year of such 
     health flexible spending arrangement, or
       ``(B) to the extent permitted by section 106(d), 
     contributed by the employer to a health savings account (as 
     defined in section 223(d)) maintained for the benefit of the 
     employee.
       ``(2) Health flexible spending arrangement.--For purposes 
     of this subsection, the term `health flexible spending 
     arrangement' means a flexible spending arrangement (as 
     defined in section 106(c)) that is a qualified benefit and 
     only permits reimbursement for expenses for medical care (as 
     defined in section 213(d)(1), without regard to subparagraphs 
     (C) and (D) thereof).
       ``(3) Unused health benefits.--For purposes of this 
     subsection, with respect to an employee, the term `unused 
     health benefits' means the excess of--
       ``(A) the maximum amount of reimbursement allowable to the 
     employee for a plan year under a health flexible spending 
     arrangement, over
       ``(B) the actual amount of reimbursement for such year 
     under such arrangement.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2004.
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