In September 2003, the Internal Revenue Service (IRS) made over-the-counter medicines eligible for reimbursement in healthcare flexible spending accounts. These accounts, or FSAs as they also are known, are voluntary programs many employers use to allow their employees to set aside money every year through payroll withholdings to pay for certain medical expenses not covered by insurance; this money does not get taxed. Employees must use all the money set aside in an FSA during the year or lose the unused portion, although legislation was introduced in the 108th Congress by Congressman Jim McCrery (R-La.), that would have allowed employees to “roll over” up to $500 from plan year to plan year.

Over-the-counter medicine reimbursement in FSAs is covered in IRS Revenue Ruling 2003-102.

Nearly 37 million private-sector employees have access to an FSA. However, only 18 percent of eligible employees take advantage of the pretax healthcare spending provided by flexible spending arrangements. (According to Congressman Jim McCrery (R-La.), author of H.R. 4279, roll-over legislation)

13.3 million tax filers have FSAs, which amounts to roughly 12 percent of all wage returns. (Source: PricewaterhouseCoopers, 2003, using 2000 individual tax model numbers)

Overall, 91 percent of employers offering reimbursement accounts offer FSAs. (Source: Hewitt Associates, 2002, survey data)

 The percentage of firms by size that offer employees flexible spending accounts in 2003 is:

• 14% of small firms (3-199 workers)
• 57% midsize firms (200-999 workers)
• 76% large firms (1,000-4,999 workers)
• 83% very large firms (5,000+ workers)

(Source: Kaiser Family Foundation and Health Research and Educational Trust Survey of Employer-Sponsored Health Benefits 2000, 2003)

The median amount forfeited by employees in their FSAs was $100. (Source: Hewitt Associates from 1996 account data)

There is no statutory maximum or minimum amount of money an employee can contribute into a flexible spending account; however, most companies do set a maximum limit of $2,000-3,000.(Source: Hirsch Financial Services, Inc.)

The Joint Committee on Taxation estimates that approximately 76 percent of current FSA participants will take advantage of the roll-over option each year. (According to Congressman Jim McCrery (R-La.), author of roll-over legislation)