Flexible Spending Account: Use It or Lose It
Flexible spending accounts can be a great tool to save money—if you use it properly and by the deadline.
FSAs allow workers to save a certain amount of money to use pre-tax for health-care costs, but there’s a use-or-lose-it rule: You surrender any money still in the account at the end of the year. While Dec. 31 seems far off, experts say summer is the perfect time to give your account a checkup.
“People need to actively manage this account. The last thing they want to do is forfeit any money,” says Craig Rosenberg, health and welfare national practice leader at human resources company AON Hewitt. “Now is a good time to assess what you have used thus far.”
Before setting up an account, experts recommend estimating medical expenses for a year, including potential doctor’s appointments, procedures and medications. Be sure to check in every three to six months to review the balance to avoid forgetting about the fund until the end of the year and rushing to spend the money on unnecessary items.
In the past, you could use funds on over-the-counter drugs, but that is no longer the case, so plan accordingly. In order to use your FSA for non-prescription drugs you’ll need a prescription from a doctor. According to experts, if you have a chronic condition or use a non-prescription drug to manage your health, it won’t be a stretch to get your doctor to write you a prescription. But if you are just looking for ways to spend the rest of your account balance, it may be a tough sell to convince your doctor to write a note.
Don’t panic if you have money left in your account, check the plan’s website to find items that qualify. “There is an extensive list of FSA-eligible expenses that can pleasantly surprise some FSA account holders,” says Tomer Shoval, CEO and co-founder of Simplee www.simplee.com.
He adds alternative medical services and dental work will also qualify. “Many everyday items are also eligible, such as contact lenses and solution, bandages and first aid supplies, diabetic strips, and even sunscreen. Just keep in mind that you may need a prescription for some of these in order to be eligible. You can also pay for your spouse or dependent’s medical expenses from your own FSA.”
Shoval says the best way to ensure you don’t leave money on the table is to create a system that makes using a FSA a habit by closely tracking medical spending either online or by hand, and to keep all receipts for eligible expenses—even if it’s just a picture.
“Allow technology to help you manage your medical expenses,” he says.
In addition to knowing eligibility requirements, Rosenberg suggesting knowing the deadline on your plan in terms of purchases. “You don’t need to have a mad rush at the end of the year to get all your claims in,” he says.
For those people who still end up losing money at the end of the year, experts recommend changing the contribution amount for the next year. No one can fully predict how much they will spend on medical expenses, but they can look to the past to get idea of future expenses.
“FSAs are not for everyone. If someone continues to lose FSA funds at the end of each year, then they should change the amount they contribute to the FSA,” says Michael Mahoney, senior vice president of consumer marketing for GoHealthInsurance. “Before you decide to move forward with a FSA or decide how much to set aside in the fund, count up the out-of-pocket costs from the previous year to determine what works best for you.”
If you have a FSA and a health savings account tied to a high-deductible health insurance plan, your FSA spending plan will be a little different. With both plans, the FSA is limited to dental and vision expenses only and everything else comes out of your HSA, according to Rosenberg.