FSAs Are a Great Way To Save Money On Out-of-Pocket Medical Expenses
Even the best employee group health insurance plans don’t cover all healthcare expenses, which is why many Southern California employers choose to also offer flexible spending accounts (FSAs) as part of their health benefits packages. An FSA is an excellent way for employees to save on uncovered medical costs such as copays, coinsurance, deductibles, and prescription medication.
What Are Flexible Spending Accounts?
Flexible spending accounts are employer-established health benefit programs that allow employees to use pre-tax dollars to pay for out-of-pocket medical expenses. Employees who elect to participate in their employers’ FSA program have money deducted from their paychecks which the employer applies to their accounts, up to $2,750 per year per employee. At the beginning of the plan year, the employee must designate how much they want to contribute to the FSA per pay period. While California employers can contribute to their employees’ FSAs, they don’t have to and many choose to not make any contribution.
Employees pay no taxes on the money in their FSA, meaning that a participating employee will save an amount equal to the income taxes they would have had to pay on the money they set aside in the account.
What Expenses Can Be Paid Out of a Flexible Spending Account?
While employees cannot pay premiums with FSA funds, they can – and should – use money in the account to pay for many common costs not covered by their California employer’s group health insurance plan. An employee can use their FSA to pay not only their own healthcare costs but also those of their spouse and dependents.
The Internal Revenue Service (IRS) has a lengthy list of eligible expenses but generally defines “medical expenses” for purposes of FSA eligibility as:
“the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.
Medical care expenses must be primarily to alleviate or prevent a physical or mental disability or illness. They don’t include expenses that are merely beneficial to general health, such as vitamins or a vacation.”
In addition to premiums, employees cannot use FSA funds to pay for long-term care coverage or amounts covered under another health plan.
Use It Or Lose It
As noted, an employee can contribute up to $2,750 to their FSA each year. However, employees need to be careful about how much they contribute to their account as they can lose any unspent amounts at the end of the plan year. Employees should only put enough money in their account to cover reasonably anticipated expenses to avoid needlessly forfeiting those funds.
For this reason, many Southern California employers offer either “grace periods” or the option to rollover funds into the next calendar year to prevent employees from losing their FSA money. Specifically, an employer can:
- Offer a grace period of up to two and a half months to use the money in an FSA deposited during the previous calendar year.
- Permit employees to carry over up to $550 each year to use in the following calendar year.
How To Use Flexible Spending Accounts To Pay For Eligible Expenses
Every employer may have their own specific way of processing claims for reimbursement from an FSA. Generally, however, an employee who pays an eligible medical expense out of their pocket must submit a claim for reimbursement through their employer with proof of the medical expense and a statement that it has not been covered by their plan. Employees can submit claims as they incur expenses or can do so on a monthly or another intermittent basis. The employee will then receive reimbursement for their costs either by check or by direct deposit.
Speak With One Of Our California Health Insurance Brokers Today To Learn More About Flexible Spending Accounts
A flexible spending account is just one tool that California workers and their employers can use to reduce the cost of healthcare. As an experienced California small business group health insurance broker, Preferred Insurance can answer your questions and provide practical, affordable health insurance coverage options for individuals and companies of all kinds.
Call Preferred Insurance today to schedule your free consultation with one of our experienced brokers to discuss your small business health insurance needs.