With More Companies Offering FSAs, Who Should and Shouldn’t Use Them?

FSA Flexible Spending Account.
AndreyPopov / Getty Images/iStockphoto

In the kind of tight labor market that the United States has seen in recent years, employers must roll out more and better perks to compete for workers. To that end, many have turned toward Flexible Spending Accounts as a way to help workers deal with rising healthcare costs.

See: 10 Ways To Spend Your FSA Money
Learn: 3 Ways Smart People Save Money When Filing Their Taxes

About two-thirds of employers surveyed by the Business Group on Health found are expected to offer FSAs in 2023, according to a recent blog on the Avacare Medical website. That’s up from 52% in 2015 and 60% in 2019.

The rise in FSAs has paralleled a similar rise in the amount of money individuals are putting into their accounts. In 2022, the average amount of money put into FSAs was estimated to be $2,400. That figure could go up even further in 2023 thanks to new rules governing contribution limits.

The IRS increased the yearly contribution limit to $3,050 for both Health Care FSAs (HCFSA) and Limited Expense Health Care FSAs, according to the National Institutes of Health. That represents a $200 increase from last year’s limit. The Dependent Care FSA maximum remains unchanged at $5,000 per household or $2,500 for those who are married filing separately.

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FSAs let workers set aside pretax money from their paychecks for medical and dental care not covered by their health insurance plans. Employers can offer FSAs with any type of health insurance plan, but they’re not required to contribute to the accounts. Instead, workers fund the accounts themselves unless their employers want to pitch in.

Employers set a deadline for when workers must spend the funds or forfeit them. The deadline is usually by the end of the calendar year, though some FSAs allow a grace period of up to two-and-a-half months to spend the money. FSA accountholders were given greater latitude to carry over unused amounts and extend the permissible period for incurring claims during the COVID-19 pandemic, but those rules are no longer in place.

You can use FSAs to pay for a variety of healthcare costs, ranging from copayments, deductibles and prescriptions to over-the-counter medications, insulin, home medical devices, eyeglasses/contacts, breast pumps, dental treatments, blood pressure monitors and first aid kits.

The Business Group on Health survey found that the most common items purchased with FSA funds are doctor visits, at 42% of respondents. That was followed by over-the-counter medications (38%), medical supplies and equipment (34%), and prescriptions (32%).

A separate survey conducted by the National Association of FSA Administrators found that accountholders were most likely to use FSA funds to purchase over-the-counter medications (61%), vision care products (35%), and medical supplies and equipment (35%).

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The main benefits of contributing to an FSA account are that you can reduce your taxable income and payroll taxes, and get access to your funds whenever you need them, Forbes reported. If you tend to have high healthcare bills and limited insurance coverage, FSAs are a good option.

The main downside is that you could end up leaving money on the table if you don’t use up your money in the allotted amount of time. That’s why it’s a good idea to calculate how much you expect to spend on health and medical care during any given year before deciding how much to contribute. FSAs might not be a smart option if you don’t spend a lot of money on healthcare.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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