In an effort to improve Flexible Spending Accounts (FSAs), Representative Charles Boustany has introduced a new bill to the U.S. House of Representatives called "The Medical FSA Improvement Act of 2011". 
If passed, the bill, effective January 1, 2013, would amend the Internal Revenue Code to allow unused amounts contributed to flexible spending arrangements to be paid back to the participants as taxable income after the close of a plan year. Currently, such unspent amounts must be forfeited by the employee due to the "use-it-or-lose-it rule".
As we have discussed previously, effective January 1, 2013, health care reform will limit employee annual contributions to FSAs to $2,500.
Proponents argue that this change would increase FSA adoption by employers and employees. However, it does not solve the major disadvantage associated with the "uniform coverage provision".
What do you think?
Read below for the current text of "H.R. 1004: Medical FSA Improvement Act of 2011".
Click here to track the bill on GovTrack.
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘Medical FSA Improvement Act of 2011’.
SEC. 2. ADDITION OF TAXABLE DISTRIBUTIONS.
(a) Treatment of Amounts Expended for Medical Care- Section 105 of the Internal Revenue Code of 1986 (relating to amounts received under accident and health plans) is amended by inserting at the end the following new subsection:
‘(k) Amounts Paid Under Medical Flexible Spending Arrangements-
(b) Additional Deferred Compensation Exception- Paragraph (2) of section 125(d) of such Code (relating to deferred compensation under a cafeteria plan) is amended by inserting at the end the following new subparagraph:
(c) Conforming Amendment- Section 409A(d)(1) of such Code is amended by striking ‘and’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, and’, and by adding at the end the following:
(d) Effective Date- The amendments made by this section shall apply to plan years beginning after December 31, 2012.
(e) Transition Rules- In the case of plan years that begin before the date of the enactment of this Act, in implementing the amendments made by this section a flexible spending arrangement may allow an individual to make a new election or to revise an existing election under such arrangement so long as such new or revised election is made within 90 days after the date of the enactment of this Act.
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Click here to track the bill on GovTrack.
