Adam Chodorow (Arizona State) has posted Charitable FSAs: A Proposal to Combine Healthcare and Charitable Giving Tax Provisions, 2011 BYU L. Rev. ___, on SSRN. Here is the abstract:

This article considers two unrelated tax provisions – healthcare Flexible Spending Accounts (FSAs) and the charitable deduction. FSAs permit eligible taxpayers to set income aside tax-free to use for medical expenses. However, these accounts have a “use-it-or-lose-it” feature that discourages participation and creates incentives for unnecessary spending at year-end. The charitable deduction is available only to those who itemize their deductions, thus negating the incentive to give for the 65% of taxpayers who take the standard deduction. Prior attempts to fix these provisions separately – by allowing taxpayers to rollover unused FSA amounts to the next year and moving some or all of the charitable deduction “above the line” – have failed.

I propose combining the two provisions by allowing taxpayers to donate unused FSA amounts to charity. Doing so would lower a key impediment to participation in FSAs while giving a functional above the line deduction (and relief from payroll taxes) to those who donate through this mechanism. Not only would this reform increase the efficacy of both provisions, but it should also avoid many of the pitfalls of prior stand-alone reform efforts.