Earlier this month, Representatives Charles Boustany (R-La.) and John Larson (D-CT) introduced the Medical FSA Improvement Act of 2011 (the “Act”) in the House of Representatives. The Act aims at increasing participation in medical flexible spending accounts (“FSAs”).

Under current legislation, FSA account holders are required to use funds in such accounts for medical expenses by the end of each calendar year. If the funds in the account are not used, then the account holders forfeit the balance of the funds. Approximately 25% of FSA account holders forfeit a portion of the funds at the end of each calendar year. According to Reps. Boustany and Larson, approximately 85% of large employers sponsor FSAs, but only 20-22% of eligible employees currently enroll in FSAs. The principal cause of the low enrollment is the fear of losing money at the end of the year.

The Act changes the current legislation by allowing FSA account holders to withdraw any remaining funds in the account at the end of the calendar year. The amount withdrawn would be taxable to the employee in the year of distribution. The Act has been referred to the House of Representatives Committee on Ways and Means.