[Congressional Record Volume 157, Number 110 (Thursday, July 21, 2011)]
[Senate]
[Pages S4806-S4807]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CARDIN (for himself and Mr. Enzi):
  S. 1404. A bill to amend the Internal Revenue Code of 1986 to 
increase participation in medical flexible spending arrangements; to 
the Committee on Finance.

  Mr. CARDIN. Mr. President, I rise today to introduce the Medical FSA 
Improvement Act of 2011. I am joined in this effort by Senator Enzi and 
I thank him for his support. Our bill would allow employees who have 
medical FSAs to cash out unused amounts, effectively repealing the 
current ``use-it-or-lose-it'' policy.
  Our legislation would modernize and encourage participation in FSAs, 
which are a helpful tool for health care consumers who face significant 
cost sharing burdens. It would remove the penalty on employees who act 
prudently throughout the year and save their FSA dollars.
  Flexible spending arrangements are an important benefit for many of 
my constituents in Maryland, Federal, State, and private sector 
employees, that allows them to set aside a portion of their income tax-
free to pay for out-of-pocket medical expenses, such as co-payments for 
doctor visits and prescription drugs, medical supplies, and equipment.
  Nationwide, about 35 million Americans have FSAs, and the median 
salary of FSA participants is $55,000. It is estimated that one-third 
of Federal employees contribute to an FSA. Currently in Maryland, there 
are over 50,000 Federal employees who benefit from FSAs. These plans 
are efficient, the administrative costs are between two and three 
percent of claims, far lower than other health insurance administrative 
costs, and over 90 percent of claims can be substantiated 
electronically, meaning that paperwork for participants is minimized.

  More than 85 percent of America's large employers offer FSAs, but 
only about 20 percent of eligible employees enroll. According to 
several surveys of eligible participants, the primary reason for 
declining to enroll or for underfunding accounts is concern about the 
``use-it-or-lose-it'' rule, which requires participants to spend their 
entire contribution before the end of the plan year or risk forfeiting 
the unused funds back to their employer. This ``use-it-or-lose-it'' 
rule was initially enacted to prevent participants from putting 
excessive amounts in their FSA, and it served to regulate what used to 
be an uncapped benefit. With the enactment of the Affordable Care Act 
in 2010, annual contributions to FSAs will be capped at $2,500 
beginning in 2013, which makes the ``use-it-or-lose-it'' rule 
unnecessary.
  It is unreasonable to expect FSA participants, especially those with 
chronic conditions, to be able to accurately forecast their out-of-
pocket medical expenses a year in advance, and it is unfair to penalize 
them at the end of the plan year if their estimates are incorrect by 
making them forfeit any unspent amounts. Ending the ``use-it-

[[Page S4807]]

or-lose-it'' rule and allowing for this cash-out option is a wise and 
sensible improvement to FSAs that will encourage more efficient 
participation in medical flexible spending accounts.
  It is time to modernize FSAs to eliminate this burdensome ``use-it-
or-lose-it'' rule. It is both fair and sound health policy to allow FSA 
participants to cash-out remaining funds at the end of the plan year 
rather than forfeiting the balance to their employer. The amounts 
cashed out would be taxable for the year of the cash-out. Moreover, 
just as it is at the discretion of employers to establish FSAs for 
their employees, it would be the employer's option to offer the cash-
out feature. But I believe many employers will offer this option, as 
they too will save money through increased employer payroll tax 
savings.
  Data provided by WageWorks shows that the average unused balance in 
the end of the year in an FSA is about $100, and each year a total of 
nearly $400 million remains in FSA accounts. The static analysis, 
before considering the effects of greater participation in FSAs, would 
indicate that allowing a cash-out of these funds and taxing these 
unused amounts would increase federal revenues by about $70 million a 
year, holding everything else constant.
  Our legislation is supported by the Employers' Council on Flexible 
Compensation, representing more than 100 member companies, including 
employers, accounting and consulting firms, third party administrators, 
and actuarial companies. I am also pleased to announce the support of 
the National Treasury Employees Union, which represents more than 
150,000 Federal employees in 31 agencies.
  I commend Representatives Charles Boustany and John Larson for having 
introduced a bipartisan companion bill in the House of Representatives, 
and urge my colleagues to support this common-sense measure.
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