Top 5 Reasons You Need to Use Your Health Care Flexible Spending Account (FSA)

Many companies these days offer what are commonly called either health care or dependent care flexible spending accounts (FSA). Surprisingly, very few employees take advantage of this fantastic benefit. According to a survey published by the International Foundation of Employee Benefit Plans in 2008, less than 40% of eligible employees who had the option available to them used a health care FSA, and less than 10% of eligible employees utilized a dependent care FSA if it was available.

As the benefits coordinator for my company, every year I make a hard pitch for the FSAs, and every year, a few more people sign up. While it is understandable that not everyone needs a dependent care flexible spending account, there is absolutely no reason anyone should be without a health care FSA. Here are the top five reasons you really should be using your flex spending account:

5. It covers everything from dental work to contact lenses to antacids to co-pays - and that list is growing every year. One argument I often hear from employees resistant to using an FSA is that they never go to the doctor or get sick and if they do, that's why they have insurance. A health care flexible spending account covers so much more than doctor's visits that this excuse is null and void. Nearly anything related to your health and well-being and many things not covered by standard health insurance are eligible for your use of FSA funds. Even sunscreen or those funky new eyeglasses you've been thinking about getting. Check with your benefits coordinator or human resources department for a full list of allowed items and services.

4. The full amount of your contributions is available as soon as your plan year starts. That means if you decide to contribute $20 every week for your plan year (Usually the first day of the month your new benefits plans go into effect), and your plan year starts on December 1, you will have $1,040.00 to spend on December 1. That's right - you don't have to wait for the money to be deposited into your account before you spend it. It's like having an interest free credit account for your health care expenses!

3. It is more convenient than ever. A common objection when flex spending accounts first came out was the hassle involved with saving receipts, submitting them to your plan administrator, and then waiting for a reimbursement check. Almost all health care flexible spending accounts now come with a debit card and most dental, vision, and other doctor offices accept them. You can also use that debit card to pay for your prescription and non-prescription medications.

2. It empowers you to know and control some of your health care costs. Since you need to determine your contribution prior to your flexible spending account going into effect, you'll need to sit down and figure out how much you'll need to save each week in order to cover your expected costs. It might surprise you to learn that your health care expenses are significantly more than you thought. That bi-monthly visit to the doctor, plus your regular prescriptions, plus your annual dental cleaning all add up. Knowledge is power - knowing your real costs can help you figure out ways to reduce those costs.

1. You are effectively getting a 25% to 40% discount on all health care you purchase with your flex spending account. This is because your contributions are federal pre-tax dollars, INCLUDING Medicare and social security taxes. You pay zero federal taxes on every dollar in your flexible spending account. Most states also exempt your flexible spending account contributions from state taxes, giving those contributions even more dollar power. If your dentist offered you a 30% discount on his services, would you take it? Of course you would! Using your flex spending account does exactly that.

I hope these reasons are compelling enough to make you consider using your health care flexible spending account. If you are really nervous about it or feel like you can't make an accurate estimate of your expected health care costs, just make the minimum contribution allowed (for most companies, it is $10 or so per week). I guarantee that you will be amazed at how quickly you end up spending the funds in your FSA account and will boost your next year's contribution.

Having pointed out all of the wonderful things about flex spending accounts, I will caution you with the one negative: all FSAs are "use-it-or-lose-it" plans, meaning that if you have funds remaining at the end of the plan year, you will forfeit those funds. To avoid this forfeiture (and in 3 years of managing benefit enrollments, I've only seen 2 employees forfeiting more than one dollar), check your flexible spending account balance a few weeks before plan year end and spend down your remaining funds.

Sources:

IFEBP, Survey & Sample Series: Flexible Benefit Plans and FSAs, www.ifebp.org/Resources/Research/sssfbpfsa.htm?PF=1, IFEBP 2008