Despite a White House veto threat, the House on Thursdayapproved legislation that would amend a 28-year-old rule requiringflexible spending account users to forfeit their unused balances.The bill also lifts restrictions on using FSAs and health savingsaccounts for over-the-counter drugs.

Under the measure, employers can allow employees to withdraw taxablemoney up to $500 that's sitting in unused FSA balances at the endof the plan year or at the end of a grace period. The law alsooverturns a health reform provision that prohibits FSA and HSAusers from getting reimbursementfor OTC drugs without a prescription. Distributions for drugswithout a prescription face a 20 percent federal tax.

[See also: 2013 HSA and FSA cheat sheet]

Lawmakers approved the legislation 270-146.

The FSA and HSA provisions are part of a broader bill, sponsoredby Rep. Erik Paulsen, R-Minn., that repeals a tax on medical devicemakers.

According to the Associated Press, “Most Democrats said the bill was yet anotherGOP attempt to weaken President Barack Obama'shealth care overhaul, which created the tax to help payfor that law's expansion of health care coverage to 30 millionAmericans.

“Repealing the tax would cost the government $29 billion overthe coming decade. To pay for that, Republicans included aprovision — also opposed by Democrats — raising $44 billion byerasing limits on money the government could recover inoverpayments to lower-earning people who will get insurancesubsidies under the health care law.”

The HSA and FSA provisions alone would have a price tag of $8billion, according to the Associated Press.

The House-approved bill comes just after the IRS announced thatit would take comments during its consideration to modify the“use-it-or-lose-it” rule.

SmartMoney.com cites a study from Mercer thatfound the average FSA participant who forfeited funds lost $43 to$60 in 2010. In 2013, a health reform law will limit FSAcontributions to $2,500.

“The 'use-or-lose' provision was originally designed to makesure FSAs, which allow participants to set aside pre-tax dollarsfor various eligible expenses, wouldn't be improperly used as taxshelters. Since the new health care law caps health care FSAcontributions at $2,500, this original purpose of 'use-or-lose' isinvalid,” said Jody Dietel, chief compliance officer atWageWorks, in a recent BenefitsPro blog.

“Instead, 'use-or-lose' has created a system which forcesaccount holders to spend down their balance at the end of theirplan year and simultaneously deters potential account holders fromenrolling for fear of losing unused funds.”

This article originally was posted on www.BenefitsPro.com, asister site of Credit Union Times.