Flexible spending account

August 9, 2005 7:59 AM

I wonder if a "flexible spending" plan at work is worth the hassle.

Is saving receipts and turning them in for reimbursement worth the supposed tax benefits of these plans? Anybody with experience, I'd love to hear your perspective.

posted by tizzie to work & money (15 comments total)

I had a flexible spending account for medical expenses at my previous employer. It saved me a few hundred bucks per year. My plan was structured so that you had to make a set monthly contribution to the account, which you then had about one year to file reimbursement claims against. I'm not sure if all plans are structured similarly, but it basically means that you can save only on expenses you expect to have in a year. Thus, I didn't get to save any money for expenses incurred by my unexpected writst fracture and subsequent physical therapy.

In my case, I submitted receipts for office copays, prescription medication, eye exams, dental visits and medical expenses my insurance didn't cover.

The process of submitting receipts and getting reimbursed was not terribly onerous. I signed up for direct deposit when I opened the account, so I would just fax over my receipts, and usually within a few weeks, the funds would be transferred into my checking
posted by Sully6 at 8:12 AM on August 9, 2005

Save one third on your medical expenses - not too shabby and worth a little effort I think. Reimbursement is usually very easy, about as difficult as submitting an expense report. The savings are great if you have some repeatable level of expenses every year. The downside is that if you do not use everything that you put into the account then you lose it. Buying eyeglasses in December has become a ritual for some people.
posted by caddis at 8:14 AM on August 9, 2005

Here's the thing: If you don't have enough expenses at the end of the year to take more than the standard deduction, you're paying for your medical expenses with taxable income. FSAs let you pay for those expenses with pre-tax dollars. Why would you pass up that opportunity? Taking advantage of these benefits is how you get wealthy.

Reimbursement isn't a hassle, and if you carefully plan for your annual medical/dental expenses, you'll save roughly the equivalent of your marginal tax rate on those costs. Be certain you err just slightly on the side of caution, for you'll lose any money left in the account at the end of the year.

My company used to offer an FSA for child care, which saved us about a gazillion dollars when we had two small kids.
posted by lambchop1 at 8:53 AM on August 9, 2005

Not only do your medical expenses (and other deductions) have to exceed your standard deduction, but only the medical expenses which exceed 7.5% of your adjusted gross income can be deducted. Dependent Care Spending Accounts are even better as you generally know in advance what your spending will be. Too bad they are limited to $5,000 worth of expenses. If you have more than one toddler and both work, you will blow through that in about the first quarter.
posted by caddis at 9:01 AM on August 9, 2005

FSA's are a great deal (provided that you use all of the money that you put aside into them!) Expenses that you can be reimbursed for from FSA's (and thus benefit from pre-tax savings) include anything covered under the IRS Section 213.

Things like:

-Deductibles and co-payments not covered by insurance (for medical, dental, prescription, vision)
-Certain over-the-counter medications not requiring a prescription
-Prescription eyeglasses and sunglasses
-Medical services not covered under your insurance plan
-These services can be reimbursed for you AND your qualified dependents (as long as the items are not reimbursable under any other insurance plan).

Things NOT reimbursable under an FSA:

-Elective cosmetic surgery
-Dietary supplements not requiring a doctor's prescription
-The cost of insurance premiums
-The cost of long-term care and expenses
-Anything that would be covered under another health plan.
-A hot tub that you get installed to treat a sore back (yes, I had an employee try to submit this for reimbursement once :)
posted by jeanmari at 9:23 AM on August 9, 2005

OTCs are now covered, (i.e. vitamins, aspirin, tylenol, motrin, antacids, allergy medicine are just a few). Eyeglasses, contacts lenses are covered. Easy way to save some money. Just make sure you only set aside in the account what you KNOW you will spend--you may have to forfeit the rest if not used.
posted by 6:1 at 9:26 AM on August 9, 2005

I am always amazed at how few people in our company take advantage of the FSA that's offered. They must like to pay more taxes than they have to.

Even if you don't spend every last dollar you said aside, you're probably still coming out ahead because of the tax savings. You can avoid the forfeit problem with a little planning, and keep in reserve the option to use unspent bucks at the end of the year on an extra pair of glasses, prescription sunglasses, etc.
posted by beagle at 9:34 AM on August 9, 2005

I've got the FSA and I use it for copays, saline solution, other eye-things that are not covered, allergy meds for my husband (claritin) . . .it's very useful. If you find that you have a surplus at the end of the year, just stock up on Claritin or get new glassess or something.
posted by Medieval Maven at 10:05 AM on August 9, 2005

I have two children, so FSAs are a no brainer for me, I set aside $50 dollars a month, and I have no problem spending the money. It's free money, assuming 33% taxation rate, I just saved $200 dollars.
posted by patrickje at 10:42 AM on August 9, 2005

Getting reimbursed really isn't a hassle, and I'd think that for most people the routine copayments and other covered expenses would exceed the cost of stamps to mail in the receipts.

The only thing to watch out for are plans which give you a card that doctors can run like a credit card to automatically charge your FSA; it's not unheard-of for doctors to charge, say, the full amount of an office visit to the card in such cases, accidentally or otherwise, and when that happens your FSA can be frozen and you'll have to reimburse your account the amount that wouldn't have been covered. That is a hassle.
posted by ubernostrum at 10:53 AM on August 9, 2005

Vitamins don't count under my FSA; unexpected medical expenses do. Definitely check out what's admissible and what's not under your specific plan. I spend about $65 a month in medical-related funds because of having Type II diabetes and its maintenance, so it's definitely worth it.
posted by cajo at 11:31 AM on August 9, 2005

When I was offered this type of plan, it only allowed me to put in only a couple hundred bucks, and this disappeared if I didn't spend it that year. It was easily the stupidest "benefit" I'd ever heard of. I'm supposed to put in money so they can take it away from me four years out of five? Sure it's pre-tax, but if you throw 80% of it away you're still way, way behind. Needless to say, nobody signed up for it and they decided not to bother offering it anymore.
posted by kindall at 12:26 PM on August 9, 2005

Thanks, everyone - that's all helpful info. I'm going to go back through the past few years expenses to figure out an amount to set aside.
posted by tizzie at 1:24 PM on August 9, 2005

A couple of questions to ask your FSA administrator:

a) do they do the debit cards? I had this at my last job and it was fantastic. Go to the eye doctor, swipe it just like a credit card, get an email the next day to fax my receipt in. Done. Fantastic.

b) if they don't, will they advance on pre-approval? My current FSA will do this. Say your dentist says you need some nasty work, and your copay is $600, and you don't have $600 laying around to give up while you wait for reimbursement. Your dentist provides you with proof that that's what you'll have to pay the day of the procedure, you submit that to your FSA, they send you a check made out to the dentist for $600 (or they send it straight to the dentist ahead of time, I can't remember). In any case, nothing comes out of your pocket even temporarily.
posted by Lyn Never at 2:30 PM on August 9, 2005

A suprising new twist! Because of a relaxation in the IRS guidelines, some employers are allowing their FSA participants to continue to access leftover money up to 2.5 months AFTER the plan's year end.
Ask your benefits administrator if your plan is participating in this new development.
posted by jeanmari at 10:28 AM on August 10, 2005