By Christopher Glomp, InsuranceAgents.com Staff Writer
You probably know that even with an employee health-benefits package, health insurance and health-related costs are becoming increasingly expensive. In order to keep costs down, many people carry a fairly high deductible on their health insurance. This means that you will incur considerable out-of-pocket costs for health care expenses before meeting the amount of your deductible. In an effort to offset these costs, it's always a good idea to make sure you're getting the best rate on your health insurance, buy requesting free health insurance quotes periodically. Using our online forms you can compare up to 5 quotes from local agents.
What you may not know is that your employer may offer a program that can help you save money on your out-of-pocket health-related expenses: a Flexible Spending Account, or FSA. An FSA is an employer-offered program that allows employees to pay for eligible out-of-pocket expenses for specific expenses, such as health care costs, using pre-tax dollars. Other FSAs allow funds to be used for dependent care costs as well, such as daily child care expenses for your children while you are at work.
An FSA (Flexible Spending Account) offers an employee the ability to reduce their taxable income by diverting income into the FSA. Essentially, an FSA offers you the advantage of paying for health care (or dependent care) expenses with pre-tax dollars—a savings reflected by the income tax bracket under which your salary qualifies.
A FSA can be an effective cost-savings device for employees. FSA savings can be applied to a variety of qualified out-of-pocket health and medical expenses, such as deductibles, doctor-visit co-payments, over-the-counter medications, and even dental and vision expenses, if not covered under an employees health insurance plan. For employees who carry a high deducible or whose plan does not cover many of these types of expenses, this pre-tax savings can be quite helpful.
Another recent improvement has made FSAs more attractive and easy to use. Previously, reimbursement from an FSA required employees to submit paperwork and receipts for reimbursement. Now, many FSAs offer the use of a debit card to charge out-of-pocket medical expenses directly from the FSA, rather than having to wait for reimbursement paperwork to be processed.
There are a few things to be cautious about regarding the use of an FSA. FSAs are processed annually and the funds allocated to an FSA that go unused during the one-year period are not recovered by employees or rolled over—they revert back to your employer. This is why it is important to carefully calculate how much of your income you wish to divert to an FSA. While saving too little means you fail to take advantage of the possible pre-tax savings, saving too much results in a direct loss of income. Only divert to your FSA what you can reasonably utilize in a calendar year. FSAs often have a two-month grace period before for employees to use remaining funds.
Another component of the way FSAs function creates a risk for employers that offer the benefit. FSAs are “pre-funded,” which means that the entire amount an employee elects to divert to their FSA is available immediately, although the employees contribution to the FSA is deducted over the course of the year, often monthly or from each paycheck. The employer stands to lose money if the employee uses all of their FSA funds early in the calendar year and then quits their job, leaving the employer to cover the difference.
Despite these possible risk factors, the FSA benefit can be a valuable benefit for employees, and can help make an employer's benefits package more attractive as well. If you are interested in using an FSA, speak with your employer. They may already offer the benefit; if not, they may be willing to set up an FSA program if there seems to be enough employee demand within the company.
There are many opportunities to setup a flexible spending account, you can even consult with health insurance agents and see what other options are available to ensure your long-lasting health, and to assure you save money. Use our quick online form to compare up to five quotes from local agents.
Published: Friday 3rd July 2009
