Financial Fellow

Written by J.P. Wicklein

     My sixteen month streak avoiding any illness has come to an end.  I was diagnosed with strep throat today.  While I was sucking on a throat lozenge I decided to write an article on healthcare flexible spending accounts. 

What is a flexible spending account?

     There are different types of flexible spending accounts (FSA) but the one I’m referring to pays for certain medical expenses not covered by health insurance.  Most often, flexible spending accounts are provided by companies as an elective benefit to their employees.  Employees fund their flexible spending accounts through pre-tax payroll deductions throughout the year.

Why should I use a flexible spending account?

     The beauty of a flexible spending account is that it allows you to pay for medical expenses with pre-tax dollars.  In short, if you’re in the 25% tax bracket this means eligible medical expenses will cost you 25% less. 

What can I pay for with my flexible spending account?

     As mentioned above, flexible spending accounts can be used to pay for healthcare expenses not covered by insurance.  Some examples of eligible expenses include deductibles, copayments, glasses, contact lenses, and over-the-counter drugs.  This week I used my flexible spending account to pay for $43 in prescription drug deductibles.  Previously I’ve used FSA funds to buy glasses, aspirin, and Nyquil. 

     Allowable expenses vary depending on the plan so be sure to check with your employer for a complete list. 

Flexible spending accounts are easy to use

     In prior years, I’ve had to fill out a form and fax in claims to receive reimbursement for eligible expenses.  Last year, though, my company implemented a debit card system.  Instead of having to mess with any paperwork I simply pay for my expenses with a MasterCard debit card.  (Just in case I hang onto all my receipts.)  The high costs associated with handling all the paperwork has caused many FSA administrators to adopt a debit card system.  Chances are your employer’s plan operates under a debit card system as well. 

Use it or lose it

     There is an area of caution surrounding flexible spending accounts.  You must use all of the funds in your flexible spending account during a specified period of time – usually one calendar year.  Any remaining, unspent funds will be forfeited.  To ensure this doesn’t happen to you I suggest budgeting conservatively when determining how much to contribute to your FSA. 

     Assuming you budget appropriately flexible spending accounts can save you money.  It sucks getting sick but saving money on your healthcare should help ease your pain. 

Photo by: Paul Keleher