There is one perfect similarity between employers and employees; everyone likes saving money. Thankfully, benefit plans have been put into action to do just that, and this post will be covering the very important and useful Flex Saving Accounts (FSAs) and a recent change that has occurred (a very positive change, may I add).
What exactly are Flex Saving Accounts (FSAs), and why do they save me money?
In the world of health insurance, there are plans coined “benefit plans” that can help compliment your health insurance plans. The Health Flexible Savings Accounts are employer sponsored (so, not all employers will offer this benefit plan, mainly because it costs the company money) and they give the employee the ability to either be reimbursed in gross-income or allow the employee to pay in gross dollars for certain medical expenses that their health insurance plans don’t fully cover, such as: copayments, coinsurances, dentist visits, vision care, etc.
How do FSAs work?
You can think of Flex Savings Accounts (FSA) as little personal bank accounts that are non-taxed; generally, the employee guestimates how much money they will be spending that plan year, and then contribute monthly donations, via salary deductions, into their FSA. Later that year when the employee incurred a qualified medical fee such as a copayment for visiting a doctor, the employee can talk to whoever is in charge of their FSA and use their pretax dollars that have either been accumulating in the FSA since the beginning of the plan year or scheduled yearly maximum contributes (such as $2000 yearly planned), to reimburse them for the copayment. They can do this using a debit card that is linked to a Bank Account administered by their Employer, or by contacting the person in charge of the FSA. For the instances where you don’t have the debit card, here is an example of how a FSA can work:
I figure I will be spending $600 dollars this plan year on medical expenses. On my third month of contributing to my FSA, I have$150 dollars in my account (the math goes as follows – [(Yearly amount I want to put into my FSA/12 Months) * Months I have been contributing to the FSA], numerically it goes (600/12) * 3. This month, I incur a bill of $30 for a copayment for visiting my primary care physician, and pay the copayment at the doctor’s office. When I get back to my office, I talk to the individual in charge of my FSA, show them the bill that shows the qualified medical service, and they hand me a check for $30 (remember, that was 30 non taxed dollars). If I couldn’t speak to anyone at my office, I could always call the insurance carrier my FSA was purchased from.
If you do have a bank account to be used for FSAs, then the process would be easier. All you would have to do is charge the copayment, for this example, to the debit card linked to the FSA bank account.
Broker Tip: If you plan to put $2000 dollars into your FSA, and your FSA plan starts July 1st, and you incur a medical payment that qualifies for FSAs that is more than you have put into your Flex Savings Account, (in this case would be $0 if you pay monthly), you could still either receive reimbursement or use your debit card, as long as the service was not over $2000. Basically, if you plan on using $X for the plan year, you can access $X at any time for your medical costs, but be aware, you cannot use the FSA advantages after you hit your planned yearly maximum.
Broker Tip: Make sure to always keep receipts and records of your medical services you spend your FSA money on, because of the FSAs tax incentives, you need to keep them for at least 7 years (think of taxes and the IRS)
The Use-or-Lose Rule
The IRS has recently changed the rules regarding FSAs and how much money you can put in them to roll over to the next month, which beforehand, was $0 (so, if you assumed you would be spending $1000 on medical services and only spent $200, you would lose that $800 when the plan year renewed. This was made so individuals couldn’t abuse the tax favored accounts). Today, FSAs are able to carry over $500 a year to the next year, which means you don’t have to worry about losing your FSA contributions if they were under or at $500.
That about sums up the majority of what FSAs are all about, have a great day!
Additional Disclaimer – Although I am an Insurance broker and a professional in the field, the Health Care laws are ever-changing, especially in the age of the Affordable Health Care Act, and the laws, information, opinions, or understandings that I have written about may be obsolete by the time you come across them and I take no legal responsibility for what actions you may or may not take because of it. To keep yourself safe, please seek updated professional advice, because changes are happening and I would like to keep everyone safe from any misleading or dead information. Please check out the “Terms and Conditions” page for more information and/or bookmark my blog for upcoming changes and updates to the ACA. Thank you for reading, and have a great day!