Health Care Flexible Spending Accounts

Publication Date: February 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

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Abstract:

Health care Flexible Spending Accounts (FSAs) are benefit plans established by employers to reimburse employees for health care expenses such as deductibles and copayments.

FSAs are usually funded by employees through salary reduction agreements, although employers are permitted to contribute as well. The contributions to and withdrawals from FSAs are tax exempt. FSA contributions are forfeited if not used by the end of the year. Legislation has been introduced in recent years to permit part or all of remaining balances to be rolled over to accounts next year or to qualified retirement accounts, and it is expected that similar bills will be introduced in the 109th Congress.

According to the 2002 Medical Expenditure Panel Survey, 39% of private-sector employees could establish a health care FSA, though actual usage was lower. FSAs were not as common for workers in small businesses. In establishments with fewer than 50 employees, 7% of workers had access, compared to 57% of workers in establishments with at least 50 employees. In July 2003, FSAs became available to federal employees for the first time.