Hewitt Tells Employers to Take Steps Now to Comply with FSA Changes

April 15, 2010 (PLANSPONSOR.com) – Employers need to take steps now to comply with provisions of the recently passed health reform legislation regarding Flexible Spending Accounts (FSAs), Hewitt Associates says.

According to an analysis Hewitt Associates conducted of its database of more than 220 employers covering more than 6 million employees, 94% of employers offer FSAs.  Under the new health care reform bill, over the counter (OTC) drugs will no longer be eligible FSA expenses in 2011 unless employees have a prescription, and individuals will not be able to contribute more than $2,500 to an FSA starting in 2013.  

Hewitt says employers should work with their spending account administrator to exclude OTC medicines that do not have a prescription and verify these administrators do not allow these items to be purchased using a debit card.  Hewitt estimates that more than half of OTC items will still be allowable without a prescription.     

In addition, employers need to start the process now of updating plan documents, summary plan descriptions, and other plan materials to reflect the new FSA changes, and should begin communicating now to employees about how these changes may impact them. Hewitt suggests companies use these changes as another opportunity to promote the benefits of using an FSA. 

Employers should begin thinking about how to modify their plans and administrative systems—including modeling tools—to limit FSA contributions to $2,500 by 2013. According to Hewitt’s data, the majority of companies that offer FSAs (62%) currently have a $5,000 contribution maximum, and only 4% had a $2,500 or less maximum.    

Though the changes will make care more expensive, particularly for those needing maintenance care related to chronic conditions and for those whose health needs are not covered by the medical plan, such as dental or vision care, Hewitt says they will have little cost impact on most workers. The analysis found only 20% of employees contributed to an FSA in 2010.  

Of those employees who contribute to an FSA, the average annual contribution is $1,441, and 18% of workers contributed more than $2,500, usually individuals earning more than $150,000 a year. In addition, Hewitt found three-quarters of FSA expenses are for prescription drugs and medical treatments, and only around 7% of all FSA claims in 2009 were for OTC drugs.  

More from Hewitt about the implications of health reform for employers can be found at http://www.hewitt.com  

A list of additional resources is here.