updated 1/3/2012
Employees in the U.S. with health care or dependent care flexible spending accounts (FSAs) should be reminded to spend the remaining balances in their accounts before the end of their plan year, when any leftover money must be forfeited—even though these accounts are employee-funded via salary deferral. Employers may (but are not required to) provide account holders with a grace period, which typically gives them until March 15 of the new year to spend their FSA funds.
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Different Accounts, Different Rules
The "use it or lose it" rule does not apply to employee-owned and portable health savings accounts (HSAs), in which funds carry over and can build up from year to year whether contributed by the employee, the employer or both.
Most employer-funded health reimbursement arrangements (HRAs) allow what are actually notational "funds" to remain and build as well although, unlike HSAs, the funds attributed to an HRA are forfeited when employment terminates.
To learn more, see the SHRM Online article "Consumer-Driven Decision: Weighing HSAs vs. HRAs." |
For those with money remaining in their FSA accounts, here are eight tips provided by FSA administrator Wageworks Inc. to avoid forfeiting funds at the end of the year or grace period:
1. Review expansive list of eligible expenses. A 2010 survey found nearly 80 percent of household decision-makers in the U.S. had trouble identifying expenses they could purchase with a health care FSA. There might be a number of items account holders will need to buy or have already bought that are eligible for reimbursement. Two easy-to-browse lists of heath care and dependent care eligible expenses are available online.
2. Request prescriptions for purchased OTC medications. If their doctor directed them to use over-the-counter (OTC) medications during the year to treat an illness or for wellness purposes, account holders can be reimbursed through their FSA for these expenses if they request a prescription. Because of changes included in the health reform law, as of January 2011 OTC medications cannot be reimbursed through an FSA without a doctor’s prescription.
3. Submit any outstanding receipts. If they haven’t yet submitted receipts for health care expenses like prescriptions or doctor’s appointments or dependent care expenses like day care or summer camp, account holders should make sure that they collect these receipts and submit them for reimbursement. Afterward, they should review how much (if any) is still left in their account. Some FSA administrators are making it easier to submit receipts through a new app for smart phones and other mobile devices.
4. Purchase medical supplies. If account holders need medical supplies on a regular basis, it can be helpful to have a backup supply on hand. This includes contact lenses and solution, prescription glasses and even Band Aid-type products. However, they should be careful to consider the expiration dates on some of these products when they purchase them.
5. Schedule routine medical appointments. Account holders should ensure everyone in their family has gotten routine check-ups with their physician, dentist and optometrist. If they see a specialty doctor, such as a chiropractor or acupuncturist, they should be advised to get needed care before the end of the year or grace period.
6. Get a flu shot and vaccinations. Has everyone in the account holder's household gotten a flu shot and kept up-to-date with other vaccinations?
7. Invest in wellness. This is a great time to get back on track with wellness goals for the year and for account holders to save future medical expenses. Smoking cessation is eligible, as is weight-loss counseling, as long as receipts are accompanied by a letter of medical necessity.
8. Log auto miles. Gas and transportation fees to and from eligible medical, dental and vision appointments are eligible for reimbursement, as are visits to the drug store or pharmacy to pick up medications. The mileage rate for the first half of 2011 was 19 cents per mile. However, the IRS increased the reimbursement amount for medical miles driven (from July 1 through Dec. 31, 2011) to 23.5 cents per mile.
The website www.SaveSmartSpendHealthy.com provides additional lists of eligible expenses, savings calculators, videos and other resources for account holders.
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FSA Funding Limit Takes Effect in 2013
As noted above, as of January 2011 over-the-counter medications cannot be reimbursed through an FSA without a doctor’s prescription.
Another provision of the health care reform law will, starting in January 2013, caps contributions to FSAs at $2,500 per year. Afterward, annual increases in the limit will be indexed to the U.S. Consumer Price Index. Prior to 2013, limits on funds contributed to FSAs are at the employer's discretion. |
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Related Articles:
Consumer-Driven Decision: Weighing HSAs vs. HRAs, SHRM Online Benefits Discipline, May 2011
IRS Issues Guidance on FSA and HRA Debit Cards for OTC Drugs, SHRM Online Benefits Discipline, December 2010
Health Care Reform's Impact on Flexible Benefits, SHRM Online Legal Issues, May 2010
FSA Changes Bring Communications Challenges, SHRM Online Benefits Discipline, April 2010
Quick Links:
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page