The new healthcare law has brought about some important changes in the flexible spending program. These changes could have a significant impact on your finances.
Flexible spending accounts can be used to keep pre-tax money for certain health care costs. You assess your health care needs and keep some money for the expenses. You can save about one-fifth of the costs in this way by using your pre-tax money. A flexible spending plan allows you to cover a number of health-related costs like over the counter medicines, sunscreens, eyeglasses, dental costs and so on.
The downside is that if you do not use your entire funds for authorized medical expenses, then you lose the benefit. There is no provision for carrying forward the remaining balance to next year. However, most companies give their employees three extra months and extension until March for spending that money.
Changes in Flexible Spending Program
The new law will not allow use of pre-tax money for over-the-counter medicines. This will reduce the number of options you can use that money for. Employers may put further restrictions. Many companies may exclude other expenses such as bandages and contact lenses, as they would not want to take the responsibility of determining which over-the-counter expenses are eligible and which are not. This would be a problem for people who need multiple over-the-counter drugs regularly for a chronic illness.
There would also be a new limit for employee contribution from 2013, which is much lower than what is currently allowed by many employers, though it is more than the present average contribution level.
The reason for these changes in the flexible spending program is that the new healthcare law provides for more budget-friendly and comprehensive health insurance coverage. Therefore, people would not need to rely so much on flexible spending money. Further, the extra tax received by the government would be used in developing health infrastructure in the country.
Impact of These Changes
These changes will not affect the majority of people, as only 27% of the eligible employees use this plan. The reason is that if the money is not used for qualified expenses, then the balance amount is lost. Those having a chronic illness and needing to spend on over the counter medical expenses regularly will suffer most, but the administration is hoping that the impact will be minimized through better coverage.