According to the Employers Council on Flexible Compensation, roughly 35 million Americans use a flexible spending account to help pay for expenses related to health care. With so many Americans taking advantage of flexible spending accounts — commonly referred to as FSAs — it’s no surprise that these arrangements have several enticing benefits.
For employees, FSAs don’t just offer a way to save money for health-related treatment, medicine or devices — they allow employees to put away savings for these expenses before taxes, reducing their overall taxable income. And from an employer’s perspective, offering FSAs as a benefit is a way to attract and retain top talent.
Rules and Contribution
Flexible spending accounts reimburse your employees for health-related expenses that are not paid for by their health insurance. Each year, employees can put up to $2,650 into a given FSA. These funds can be used to cover copays, prescription and over-the-counter medications and medical equipment and supplies. They cannot be put toward insurance premiums.
Although employees must generally use the money in their FSAs within a year, employers have the ability to build in some leeway either by providing a grace period of up to two and a half extra months in which the money can be used or by allowing employees to carry up to $500 over into the next year. Note that these options are either-or: You can only offer one. Doing so will help your employees get the most out of their money and reinforce smart saving habits.
Best Practices for Maximizing FSAs
Since many people underuse their FSA benefits either through lack of knowledge or oversight in planning, it may be helpful to share some best practices on how your employees can maximize their FSAs.
Employees should be aware that a flexible spending account isn’t restricted to the purchase of prescription drugs and annual health checkups. Money in FSAs can also be used to pay for:
- Birth control
- Dental treatments, including braces, fillings, and dentures
- Vision care, including eye exams, prescription glasses or contact lenses, contact lens solution and LASIK surgery
- First aid kit contents like bandages, antibacterial creams and aspirin
- Alternative treatments such as chiropractic care or acupuncture
- Annual flu shots
- Diabetes management items like insulin and blood sugar testing kits
- Skin protection, including sunscreen
- Medical equipment, including crutches, thermometers, blood pressure monitors and pain-relief devices
- Baby-care supplies like breast pumps and monitors
- Smoking cessation programs
- Home therapy treatments, including heat packs and massage rollers
Uncertainty around how much money to save for health-related expenses means employees often over- or undercontribute to their FSAs. This is why educating your staff on how to plan and budget FSA contributions is important.
Advise them to track their health expenses over a given period of time to glean an accurate idea of how much they’re likely to spend going forward. And as they plan, they should know how to access information about their flexible spending account online, including the name of and contact information for the company’s FSA administrator.
When they know how to get the most out of their FSAs, your employees will understand the benefit’s value — and they’ll thank you for providing it.
Stay up to date on the latest health care regulations and trends for your small business: subscribe to our monthly e-newsletter.