Amendment boosts flexible spending accounts

An amendment to the U.S. Senate healthcare reform bill would adjust the current cap on flexible spending accounts (FSA) so that it rises with inflation.

The accounts enable Americans to save pretax money for out-of-pocket medical and dental costs.

Current law allows employers to set up these accounts for employees. Employees then contribute as much as they want to them in pretax dollars from their paychecks, though employers may set some limit. Employees can then use the money for healthcare expenses, including dentistry, but they must spend the entire amount in the account by the end of the year.

The healthcare reform bill now before the U.S. Senate would set a maximum annual limit of $2,500 on the amount that employees can contribute per year. The cap is intended to save the federal government money that could be used to expand healthcare coverage to people who don't have it.

A similar bill passed in the U.S. House of Representatives also sets a $2,500 cap, but indexes it for inflation.