As outlined in the Patient Protection and Affordable Care Act (PPACA) of 2010, annual FSA contributions will be limited to $2,500 as of January 1, 2013. Going forward, the limit will rise annually based on the rate of inflation. There has been some debate over the overall impact of this ruling. Those FSA participants who regularly elect more than $2,500 annually, mostly to pay for prescriptions not covered by traditional insurance, could be negatively impacted. Planning ahead will be key more than ever.

Flexible spending accounts, or FSAs, allow employees to sock away tax-free dollars that can be used to pay for medical expenses such as drug co-pays, deductibles and treatments not covered by insurance plans (elective surgeries, Lasik, etc…). Up until now, there hasn’t been an official limit to how much you could contribute to an FSA, although IRS rules dictated that employers create some kind of maximum contribution. Many employers cap the amount in the $2,000 to $5,000 range according to a 2009 report by the Center on Budget and Policy Priorities in Washington, D.C. Currently, Solution Services has a cap of $10,000 for health reimbursements, and $5,000 for dependent care.

In addition, FSAs will remain “use-it-or-lose-it” accounts. That is, any unused balance for one year can’t be used to fund health care spending in the next year. New restrictions on how you can spend FSA funds will change more quickly as well.

“It’s designed to bring some balance back into the tax code and make sure those dollars are used for medical purposes,” says Collins. “You can still put money aside in these accounts, there just won’t be quite as big of a tax break.”

Read more: How health care reform changes FSAs, HSAs http://www.bankrate.com/finance/insurance/how-health-care-reform-changes-fsas-hsas-1.aspx#ixzz20XNCI8vB

One way to begin preparing to talk as a family, if applicable. If both spouses have an FSA available, each can fund his/her health FSA to the full amount of the cap. In addition, if an individual is employed by two separate employers who are not members of the same controlled group or affiliated service group (as defined by the IRS ), he or she may establish and fund an FSA at each employer up to the amount of the cap. The timing and details of this guidance are helpful and positive for non-calendar year health FSA plans. Prior to this guidance, there were still a number of outstanding questions regarding to the treatment of non-calendar year plans. The guidance avoids potential complicating situations that might have arisen for employees in those plans. (found here)

It always can be helpful to talk to your HR consultants at Solution Services on how to prepare your employees for this new change.