Guide To Health Insurance.org

Flexible Spending Accounts (FSA) allow employees to set aside pre-taxed income for routine medical expenses. With health care costs increasing every year, companies continue to look for ways to shift more of the economic burden onto employees, since they'd be bankrupted by the types of insurance plans they used to be able to offer. FSAs are great ways to save money for medically related expenses, and if used wisely, can really work to an employees benefit. They are frequently called flex-spending or reimbursement accounts.

How Flexible Spending Accounts Work

A Flexible Spending Account is an employer-sponsored benefit which allows you to defer a portion of your paycheck into an account specifically intended to reimburse you for out-of-pocket medical costs. The money is taken out of your paycheck in regular, equal amounts, prior to any federal, state, or local taxes being applied. This means that for every $10 you set aside per pay period, you will only find your paycheck reduced by approximately $7.50. Since you are in a sense showing slightly less taxable income, a slightly smaller amount of taxes is withheld.

Furthermore, because you're using pre-taxed dollars for payment, getting reimbursed with funds from an FSA may save you more than a third of the amount paid for out-of-pocket medical expenses. If you know you are going to incur medical expenses throughout the year, it is financially smart to take advantage of this program. Employers set limits on how much can be contributed per year to FSA medical accounts. After paying for these medical expenses yourself, you simply submit your receipt to your employer in order to receive reimbursement.

FSA Uses

FSA accounts can be used for reimbursement of any medically related cost that is not covered by your health care plan. This includes:

• Deductibles and co-payments on doctor visits and drug prescriptions
  
• Visits to doctors or hospitals not involved in your health care plan
  
• Fees for lab tests or exams
  
• Smoking-cessation programs
  
• Over-the-counter drugs
  
• Birth control
  
• Vision
  
• Dental
  
• Orthodontic
  
• Acupuncture treatments
  
• Non-elective cosmetic surgery
  
• Inpatient drug and alcohol treatments
  
• Out-of-pocket costs incurred by your spouse and dependents.

Past Drawback

In the past, there was a huge drawback to the structure of FSA accounts. Let's say you put $500 into an FSA, but use only $400. Under the former structure, you would lose that $100. The fear of forfeiting funds in an FSA account understandably kept many people from taking advantage of these plans. The IRS changed this law in 2003, and now an employee is entitled to have the total amount of unused FSA funds available to them for two years, two months, and fifteen days after the end of the benefit year. So, if you have unused FSA funds in your account at the end of 2006, they will rollover, and you will have until March 15 of 2008 to use them.