Using a Flexible Spending Account for Medical Expenses

by Marcy on April 9, 2008 · 0 comments

I have been wanting to write about using a Medical Expense Flexible Spending Account (FSA) for awhile now, and decided that today would be a great day to do it since I have to submit a form and it is on my mind.

My husband’s employer has offered a FSA account as part of his benefits package from the day he started working there. However, it took us 3 or 4 years to finally get up the nerve to sign up and give it a try. I must say that I wish I had signed up sooner, because I love it!

In case you aren’t aware of what a FSA is, in the simplest description I can come up with, it is a pre-tax spending account which allows you to pay for co-pays and other eligible medical expenses tax free.

Basically, you decide how much money you would like to contribute to this account for the year (Jan.-Dec.), and the amount is divided equally and set aside from each of your pay checks. For example, we set aside $1500 this year for our FSA, and because my husband gets paid weekly, $28.85 (pre-tax) is deducted for our FSA.

Two things I would like to note is that most employers cap how much money you can put into your FSA for the year, and if you do not use all of the money in your account by the end of the year, you will lose it. More about that in a minute.

Before we signed up for our FSA, we had a few concerns. One, we didn’t want to deal with a cumbersome form submittal process for our eligible expenses. Two, we didn’t know how much to contribute, and knew that if we didn’t use up the money in our account that we would lose it at the end of the year. Three, we didn’t think that the tax break would benefit us all that much.

However, we had friends who used a FSA and they liked it, so we decided to start with a small amount and give it a try. Our first year we decided to put $500 into our account. To our surprise, the money was gone by June or July. The second year, we put $1000 into our account, and it too was gone by the end of the year. When I realized that we could also submit our eye care expenses (contacts & glasses) I went ahead and upped our amount to $1500.

In the four years that we have been using a FSA, I have found that our particular plan couldn’t be easier to use. All of our concerns proved to be unfounded. We are automatically cut a check for any co-pays or prescription costs that we pay out of pocket. Occasionally I submit my own paper forms for expenses that we incur at the eye doctor or when purchasing over the counter medicines. The form that I fill out is easy to complete, and I typically have received a check in the mail 2-3 weeks after I mail it in. What is even better is that most drug stores now mark which items are eligible for reimbursement on your receipt. I know that this has helped me remember to hang on to the receipt many times.

Some of the items we use our FSA for include: Contact Solution, Acne Face Wash, Acne Body Scrub, Pain Relievers, Allergy Medicine, Sinus Medicine, and First Aid items (Band-aids, Antibiotic Creams). You can view a list of eligible expenses here, however I recommend that you review the information provided to you by your employer to confirm.

In terms of the “use it or lose it” rule, I haven’t found this to be an issue. I know approximately what contacts for my husband and I will cost us out of pocket each year (this is by far our largest out of pocket medical expense). I can guesstimate how much we will need to cover out of pocket dental and medicine expenses. Worst case scenario is that I have to stock up on Contact Solution and other eligible items if I still have a balance remaining in December.

In my opinion, this is a great way to “force” yourself to budget for out of pocket medical expenses, and you get a little bit of a tax break in the process. But I am not an expert on this topic, so please be sure to check out your plan for specifics on what is offered to you. Please also note that the dollar amounts listed above are what currently works for our family. It is important that you determine what amounts work for your family based on family size and your own situation.

What about you? Do you participate in a FSA (if you have the option)? What has your experience been? If you have the option of signing up for one and haven’t, what is holding you back?

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