Health Insurance And Flexible Spending Accounts

A flexible spending account (FSA), or flexible spending arrangement

, is just one of a number of benefit options offered by some of the more successful employers that can afford such generous health care packages. While there are flexible spending accounts for dependent care and adoption expenses, these are relatively rare, particularly in comparison to the medical FSA.

Medical flex accounts allow for users to set aside a desired amount of their earning to pay for medical expenses not covered for insurance. These earnings are set aside before taxes are incurred, thus offering a potentially impressive amount of savings when it comes to taxable income.

Before January 1, 2011, employers with an FSA were permitted to use the money they had set aside for anything related to medical expenses, including bandages, antibiotic ointment, and any other items to address a medical need but available without a prescription.

Unfortunately, with the enactment of the Patient Protections and Affordable Care Act, these items are no longer eligible for reimbursement with FSA funds. Now, the only tangible items eligible for reimbursement require a doctor's order, or prescription. Generally speaking, the same items that are permitted for deduction when doing taxes are eligible for reimbursement from a flexible spending account.

Also before this recently enacted legislation, employers were permitted to determine the maximum annual election to the FSA, which was particularly beneficial to individuals that had high health costs. However, this bill now dictates that employers may not offer an annual election of more than $2500.

Some employers issue members of their flexible spending account a debit card that functions just like a regular bank debit card, with the exception that it may only be used to pay eligible medical expenses. This reduces the need to organize and copy receipts, complete paperwork, and wait for reimbursement after the necessary documents have been sent in. Others require this time-consuming process before funds are released for reimbursement.

When signing up for an employer's flexible spending account, it is important to have as close an idea as possible as to how much you will be spending on eligible medical expenses. Generally it is best to err on the side of putting slightly too little into the account, as if you put too much into the account, any excess funds will be lost at the end of the calendar year. However, employers do have the legal option of offering a 2 month grace period for employees to use excess funds after the end of the calendar year, though this option is rarely offered.

One of the benefits of having a flexible spending account is that the entire opted amount is available for use at the start of a new year. For example, an employee that chose to have $2500 taken out of their checks total for the year will have access to reimbursement for that entire amount January 1st. With such impressive benefits, it would be in anyone's best interest to at least consider utilizing an FSA.

by: Casey Trillbar

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