Flexible Spending Accounts (FSA)
A Health Care Flexible Spending Arrangement (FSA) is an employer sponsored benefit that enables employees to set aside pre-tax dollars out of their paycheck to pay for eligible health care expenses. Monies put into the plan avoid both Federal Income Tax and FICA. The average savings is about 25-30%.
Common eligible expenses are prescription and office visit copays; vision expense, dental work, orthodontia and expenses that are applied to medical plan deductibles. Expenses that are for one’s general well-being, cosmetic in nature or not medically necessary are not eligible.
It’s no secret that the modification announced October 31, 2013 by the U.S. Department of the Treasury and the IRS to the “use it or lose it” rule for health flexible spending accounts (FSAs) is big news. More accurately, it’s really big news. Really. Big. News. And this news can have a tremendous positive impact on your business through increased revenue opportunities.
The U.S. Department of the Treasury and the IRS issued a notice modifying the longstanding “use it or lose it” rule for health flexible spending accounts (FSAs). From the Treasury’s press release: To make health FSAs more consumer-friendly and provide added flexibility, the updated guidance permits employers to allow plan participants to carry over up to $500 of their unused health FSA balances remaining at the end of a plan year.
What the modification notice means:
Effective immediately, employers are able to amend their plan documents and provide an option for either a grace period or allow employees to roll over up to $500 of unused FSA funds at the end of the 2013 plan year and for plan years going forward.
How the modification changes things:
We estimate a significant increase in FSA enrollment, and can provide you with communication, education, and marketing collateral to support your efforts in making this the biggest enrollment season ever while positioning you for unprecedented growth in 2014. For example, any employee who may have out of pocket medical expenses and was considering an FSA before will take a strong new interest in participating in an FSA. In addition, employees with remaining elections at the end of a plan year are no longer forced to find ways to spend down their election amounts unnecessarily.