A Flexible Spending Account (FSA), also sometimes known as a Flexible Spending Arrangement, is a financial account that can be set up through an employer. The account allows you, as an employee, to set aside a portion of your pre-tax wages to pay for certain healthcare expenses for you and your family. In this information guide, we will look at how the plan works, what services and products are eligible and what happens to any "leftover" money in your account. We will also look at some of the specifics of what you need to do in order to participate in this money-saving program.
FSAs are usually set up through an employer's cafeteria plan, a flexible benefit plan that gives workers credits and a menu of benefits on which they can spend them. The list can include medical coverage, dental care, life insurance, disability coverage and vacation days. There are two common types of FSAs offered through most cafeteria plans: the medical FSA and the dependent care FSA.
Medical FSAs
Medical FSAs, sometimes referred to as medical expense FSAs, pay for medical expenses not covered by insurance. The most common items covered by the medical FSA include deductibles, co-payments and co-insurance for the employee's health plan, but it may also cover expenses not included in a health plan, like dental and vision costs and over-the-counter (OTC) drugs. Some of the things not covered by a medical FSA are medical insurance premiums, cosmetic-related items (including cosmetic surgery) and items that claim to improve "general health." In other words, covered items must treat or prevent a specific condition, such as things as complex as diabetes or as common as treatment for cuts and bruises.
Annual monetary caps for FSAs are determined by employers. Generally speaking, employers limit the annual amount an employee may select in order to reduce the risk of losing money through pre-funding. Pre-funding occurs should an employee leave or be terminated without completing payments into the FSA, and the employer has no recourse to collect the pre-funded money from the employee.
FSAs normally work through debit cards, which allows for automatic electronic transfer of pre-tax money from an account when paying for qualified expenses. A card is beneficial because it provides for immediate reimbursement at the point of service and eliminates the paper claims process and also greatly simplifies the substantiation requirement. If you do not have a debit card, you can still use your FSA account, but there is more paperwork involved. Currently, the number of debit cards tied to FSA accounts is approaching 85 percent, so if you don't have an FSA debit card, chances are that you may get one in the near future.
Dependent care FSAs
Another form of FSA is one that is established to pay for the care of dependents that live with you. The most common use of this type of account is children's day care, although, it can also be used for day care for senior citizens who are dependents. Dependent care FSAs are capped at $5,000 per year by the federal government. Unlike medical FSAs, dependent care FSAs cannot be pre-funded, meaning that the account holder can only use funds that they have already deposited into the account.
Many services and products can be paid for through your FSA. In general, eligible services are those which diagnose, prevent, treat or mitigate a physical or mental problem. Anything that is considered a deductible expense by the Internal Revenue Service and is not reimbursed through your insurance can be reimbursed through your FSA.
Besides what you might expect to be covered, such as prescription drugs and visits to the doctor, dentist or optometrist, there are many other items, such as over-the-counter drugs and medical care equipment that can be paid for through a flexible spending account.
Depending on the plan you have, some of the products which can be covered include:
Mobility aids: wheelchairs, walkers and mobility scooters
Diagnostics: blood pressure monitors, heart rate monitors and thermometers
Assistive products: grab bars, lift chairs and bed tables
Incontinence products: adult disposable underwear, disposable wipes and absorbent bed covers
Overstock.com carries a large selection of FSA-eligible products. We currently use two classifications within the store: FSA eligible and FSA eligible with a physician's letter. Most items, like contraceptives and blood pressure monitors, are acceptable under standard reimbursement. Certain items, like wheelchairs, require a letter of medical necessity from a physician. Our product descriptions will tell you which of these categories the products will fall under, but you'll always want to check with your plan to be sure.
Is there an expiration date for the money I have in my FSA?
Yes. Flexible spending accounts operate on an annual basis, and whatever money that is still in your account when the year is up will be lost. The coverage period is usually defined as the "plan year" and is normally the same as the calendar year, but to be sure, check the specifics of your particular plan.
Why is it better to use a medical FSA than to claim my medical expenses as a deduction on my income tax?
There are two main reasons why an FSA can save you more money. First of all, only medical expenses that exceed 7.5 percent of your adjusted gross income can be deducted on your tax return, while with your FSA, the first dollar you spend will be tax-free. Second, on your tax return, your medical expenses are only exempt from income taxes, while with your FSA they are exempt from both your income taxes and your FICA taxes.
How do I know what types of OTC expenses are eligible for FSA payment?
Since a change in item eligibility occurred in 2003, many over-the-counter products can now be paid for with your FSA. Products that are being used to diagnose, treat or prevent a specific medical condition may be covered. Nutritional supplements such as vitamins and herbal supplements are not eligible unless they are prescribed by a licensed practitioner to treat a specific medical condition. A written directive from the practitioner will be needed for FSA reimbursement on these types of items.
Use your FSA to stock up on items you need to maintain your health at home
Many products that are vital to dealing with your medical condition in your home are eligible for FSA payment. These items include blood pressure monitors, toilet safety rails, steam inhalers and stethoscopes, to name but a few.
Stay mobile and save money through your FSA
Your flexible spending account can be used to keep you moving. Some of the mobility devices that are FSA-approved include walkers, mobility scooters and wheelchairs, and you can find them all for less at Overstock.com.
Stock up on all of your health, nutrition and beauty supplies at Overstock.com
While not everything you need is covered through your FSA, you can still get great deals on everything at Overstock.com. We carry a huge inventory of everything from vitamins to aromatherapy and massage supplies. With such a large selection and incredibly low prices, there's really no reason to shop anywhere else for your health and beauty supplies.
