Flexible Spending Accounts and Medical Savings Accounts

Download or read book Flexible Spending Accounts and Medical Savings Accounts written by and published by . This book was released on 2003 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Flexible spending accounts (FSAs) are employer-established benefit plans that reimburse employees for specified expenses; they first began in the 1970s. Medical savings accounts (MSAs) are tax-advantaged individual savings accounts that can also be used for unreimbursed expenses; they became available under a demonstration that began in 1997. President Bush's FY2004 budget proposed changes to FSAs and a permanent extension and substantial expansion of MSAs that are identical to President Bush's FY2003 budget proposal. FSAs and MSAs are similar in some respects but dissimilar in others. Both can be used for unreimbursed medical expenses, and contributions to both have tax advantages. However, FSA contributions are forfeited if not used by the end of the year, while MSA contributions may be carried over. More important, MSA contributions can be made only when account owners have high deductible health insurance, while contributions to FSAs can occur with any type of insurance. FSAs can also be used for child and dependent care expenses, provided a separate account is established for this purpose. Both FSAs and MSAs should be distinguished from health reimbursement accounts (HRAs), for which the Internal Revenue Service (IRS) issued guidance in June, 2002. In 1999, more than one in five private-sector employees could establish an FSA. FSAs were more common for state and local government employees but less so for workers in small businesses. In establishments with fewer than 50 employees, 8% of workers had access, compared to 57% of workers in establishments with at least 2,500 employees. In July 2003, FSAs will be available to federal employees for the first time. Although there is little information on participation in FSAs, such information exists on MSAs: fewer than 100,000 MSAs were established through June 2002, far lower than the number authorized by statute. Low participation rates are one reason new legislation is being considered.