CWA Health Care Reform Update: Flexible Spending Accounts Under ACA

How are flexible spending accounts impacted by the Affordable Care Act?

Flexible Spending Accounts (FSAs) are employer sponsored accounts whose funds can be used to reimburse participants for qualified medical expenses. Employers may make defined contributions to these accounts and employees may also set aside money from their paychecks to be directed into their FSA. Contributions made into FSAs are not subject to income or payroll taxes. FSAs have a “use-it-or-lose-it” rule; all funds deposited into FSAs must be used by March 15th of the following year or will be forfeited and revert back to your employer.

The Affordable Care Act makes the following changes to FSAs:

• Tax-free contributions to all FSAs will now be limited to $2,500 per employee, per year. Married couples with separate accounts would therefore be able to contribute $5,000 total ($2,500 each) towards their FSAs. This went into effect January 1, 2013.
• Over-the-counter drugs (such as cough medicines, pain relievers, acid controllers, allergy medications, and sleep aids) will require a prescription in order to be reimbursed with FSA money. Insulin purchased over-the-counter without a prescription will continue to be eligible for reimbursement. This went into effect January 1, 2011.

More information on Flexible Spending Accounts, Health Reimbursement Accounts, and Health Savings Accounts can be found here: CWA Factsheet