Health care FSAs or flexible spending accounts (FSAs) are pre-tax savings accounts that allow enrollees to use tax-free dollars for eligible medical expenses, making the account popular among employers who provide group health insurance plans, though not all employer plans include it as an employee benefit. Health care FSAs not only allow enrollees to use pre-tax dollars when paying medical costs but can provide many additional advantages as well.
Employees choose how much to contribute via payroll deduction. Contribution amounts may be altered during open enrollment periods or by submitting a qualified life event form to their company. Once enrolled, their total annual election amount should become available on day one of each plan year and can typically be used towards covering eligible expenses throughout the year.
One limitation of FSAs, known as the “use it or lose it” rule, applies to both health care FSAs and limited-use health FSAs.
Many employers now allow employees to carry over up to $500 from one year into the next; others provide them with a 2.5 month grace period at the end of each year in which to use any remaining balances in their accounts. Unfortunately, an employer cannot offer both options; employees cannot use the grace period with any unutilized balances from previous years or utilize both at once.
Dependent upon how their company manages their FSA, employees may either submit receipts for reimbursement, or have access to a debit card that allows for easy use at the point of sale. While keeping receipts can help save paperwork for reimbursement purposes, this card typically only works at participating merchants.
Some employers provide employees with an option whereby expenses incurred during working hours will automatically be reimbursed – even without having brought an FSA card with them – saving time for employees who may otherwise forget to save receipts or submit claim forms. This system may prove particularly helpful for busy workers who might otherwise forget.
While Maxine appreciates the convenience of an FSA, she still keeps track of expenses she incurs each year – from over-the-counter pain medications to heating pads for her back pain. In addition to keeping track of health expenses, she uses her FSA to purchase school supplies such as pencils and backpacks for her children – something which helps alleviate some of the costs associated with taking care of herself and her family. Maxine feels content that her FSA helped alleviate some of those costs.