What You Need to Know About Flexible Spending Accounts
Learn how to maximize the use of flexible spending to reduce your annual medical bills.
Flexible spending accounts (FSAs), which allow an employee to deduct a specific amount each paycheck, help to defray medical costs and thus are particularly helpful for those coping with a serious diagnosis like arthritis. According to benefits administrator Ceridian Corp., health flexible spending accounts, or FSAs, can save users an average of 30 percent annually. Even so, employees are understandably cautious about how much they deduct from their paycheck; any unused money is forfeited at year’s end.
But for those who can afford to deduct money, the savings can be vital, says Marty Rosen, executive vice president and co-founder of Health Advocate Inc., an employer-provided service that assists employees in navigating insurance and other health-related issues. “Especially for someone with a chronic illness, it’s almost a no-brainer,” Rosen says regarding the accounts. “It would be almost like burning money if you didn’t do it.”
Flexible spending accounts allow you to pay for up to $2,500 in eligible medical expenses yearly with before-tax dollars. Eligible expenses include doctor’s office co-pays, dental co-pays, vision exams, prescription medications and OTC medications such as ibuprofen and proton pump inhibitors, provided you have a doctor’s prescription for them. IRS Publication 969 provides a comprehensive list of medical expenses eligible for flexible spending accounts.
Users of health FSAs tend to be married with children and fall within a middle-income bracket, with a median income of $50,000 to $70,000, according to data from SHPS, a benefits administrator.
Typically, one-fourth of FSA dollars are spent on medications, either prescription or over-the-counter, according to SHPS data. Only 20 percent of FSA users might be impacted by the $2,500 cap, which was instituted in January 2013, but they are more likely to have significant health issues.
However, one challenge is that many arthritis patients are on some type of biologic medication and OTC use may be minimal. Another difficulty is that regular use of medications, such as naproxen, can lead to the use of other OTC medications, such as antacids or proton pump inhibitors for stomach issues.
Keeping up with your medical expenses – particularly those for OTC medications – to submit for reimbursement for reimbursement requires organization and paperwork for the doctor and patient alike, says Rosen, who also co-authored The Healthcare Survival Guide (Health Advocate Publishing Inc., 2009). One step patients can take is to ask their physicians to write a year’s worth of prescriptions in advance for OTC medications.
Patients also might want to take a second look at prescription alternatives, he says. Sometimes a similar medication, prescribed through a mail-order plan, might be cheaper than its OTC cousin anyway.
Some patients may benefit from divvying up medical expenses between a health savings account and a flexible spending account, if both are offered through their employer, Rosen says. A health spending account, which is paired with a high-deductible health care plan, can be used for medical costs. And the $2,500 limit of the FSA can be reserved for dental and vision costs, when the requisite type, called a “limited purpose FSA,” is available, he says.
For insight into changes related to health reform, including flexible spending accounts, tap one of these resources:
1. Consumer Reports: An online timeline of health reform changes through 2014.
2. Healthcare.gov: Federal officials have launched a site that explains the various details related to health reform, including new coverage options.
3. Kaiser Family Foundation: This 13-page document provides a summary of health reform’s elements.