With healthcare expenses on the rise, the average family of four can expect to spend more than $4,300 a year on medical expenses not covered by insurance – accounting for a significant chunk of the 61% increase in medical costs over the last 10 years. The good news is that employers can help their employees save for and off-set the costs of these medical expenses by offering a healthcare Flexible Spending Account (FSA) to them. By helping plan participants save for common health expenses not covered by insurance, FSAs allow employees to stay healthy without putting their financial health at risk. Let’s explore some of the most commonly asked questions about FSAs and how these plans can benefit your employees.
What is a healthcare FSA?
Healthcare FSAs cover common medical, dental, and vision expenses that employees would normally pay out of pocket. Employees can use their FSA to reimburse themselves for deductible payments or co-payments when they visit the doctor, medical equipment, eyeglasses, dental work, and even over the counter drugs like pain relievers and cold and allergy medicines.
How does an FSA work?
Funding for FSAs comes from the employee. Employees determine the amount to be withheld from their payroll on a regular basis and their payroll department makes the deductions pre-tax. As of January 1, 2019, the IRS has limited the annual contribution limit into healthcare FSAs to $2,700. The limit is per person, so each spouse in a household may contribute up to that limit. The IRS reconsiders the contribution limit on an annual basis to account for inflation increases.
When employees have an eligible healthcare expense, they can either pay with their FSA designated payment card or pay the expense out-of-pocket and request reimbursement. To request reimbursement for qualified expenses, the employee must submit a reimbursement request along with the receipt for the purchase. Some FSA plan administrators feature websites or mobile apps for participants to use while others require the employee to submit the reimbursement requests through their employer to the plan administrator.
What expenses are FSA-eligible?
Literally, thousands of products and services meet the approved health care expenditure requirements as defined in Section 213(d) of the IRS code. FSA-eligible expenses include common out-of-pocket medical expenses like copayments, dental care costs, vision care costs, prescription medications, over-the-counter medications, and many others.
Requests for reimbursement of non-eligible expenses will be denied. If a plan participant makes a non-qualifying purchase using the plan provided payment card, they must reimburse their account for the amount of that transaction. Using FSA funds for non-eligible expenses without reimbursing the plan can result in income tax liability for the amount used on those expenses.
What are the benefits of an FSA?
When employees participate in an FSA, the single greatest benefit is the tax savings they can achieve. Since the employee’s deduction is made pre-tax, every dollar set aside into an FSA reduces the employee’s income tax liability. By putting money aside into an FSA, the typical employee is able to reduce their tax liability by more than $650 per year. Additionally, FSA plan participants are reimbursed for qualified expenses that they are already paying for – putting money back into their pockets.
Plan administration you can trust
Selecting the right flexible benefit plans for your employees can be a daunting task for many small and mid-size employers – that’s where we come in. Sheakley’s Flexible Benefits experts provide the advice and support employers need to confidently select the right flexible benefits to meet the needs of their company and employees. It starts with a consultative meeting to determine the mix of flexible benefit options that best meets the needs of the business and its employees. In addition to comprehensive plan management, Sheakley’s team provides training and educational opportunities to help your management team and employees better understand and utilize their benefits.
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