Beginning in 2013 Obamacare limits the amount of tax free contributions a worker may place in the popular FSA or Flexible Spending Account to $2,500. By limiting the contributions, which reduce taxable income for individuals, additional revenue was raised to fund the health care law. In the process of course, the value of the FSA was reduced and out of pocket medical costs were raised for many Americans.

Many people use these accounts to help pay for medical and dental care above amounts reimbursed by their benefit plans. The high cost of orthodontics and glasses are ideal uses for the FSA.

The main drawback of the FSA is that money placed in the account but not used for medical expenses is forfeited.

In May the IRS released guidance for employer plans on applying the new cap. The unexpected good news is that the Notice (2012-40) says the IRS and Treasury Department are re-examining the long-standing “use it or lose it” rule for health FSAs.

It’s not time to jump for joy however because modifying the use it or lose it provision costs money. This is because it is assumed that more tax-free money will be placed into FSAs. If the rule is modified, it is likely that the amount not forfeited will be limited, perhaps up to $500 which has been proposed in legislation. It would help many Americans if the unused FSA funds could be rolled over from year to year and thus accumulated for health care expenses in retirement.

Even with the new $2,500 limit the FSA is a valuable tool to reduce health care expenses. Unfortunately the account is under used by the people could benefit most. With a little planning the potential forfeiture is not a problem.

If you have an FSA available, you should seriously consider its use during your enrollment period for 2013.