What are Flexible Spending Accounts?

Flexible spending accounts (FSAs) are voluntary, account-based plans used by millions of Americans across the country. FSAs enable working Americans and their families to pay for eligible out-of-pocket health care needs, such as co-pays for prescription drugs, office visits and medical supplies, with pre-tax dollars.

Who uses FSAs?

Millions of working Americans use FSAs. They are particularly important for individuals and families battling chronic conditions that require ongoing care and medical supplies and services, such as wheelchair repair and diabetic supplies.

What are the benefits of FSAs?

FSAs enable participants to meet their health care needs and empower users to be more involved in health care decisions, which promotes transparency of health care costs, reduces unnecessary spending and ultimately drives down health care costs.

Don’t FSAs promote over-purchasing of health care?

No. An FSA participant is spending his or her own income when electing to deposit money into an FSA. A consumer is unlikely to waste those set-aside funds on unnecessary expenditures. In addition, an employee loses any unused funds at the end of the year. This results in consumers being conservative about the amount of money they contribute to FSAs.

Aren’t FSAs a tool for the rich?

No. FSAs are used primarily by the working middle class. The median income of FSA participants is approximately $55,000.

How will the passage of the health care bill impact FSA participants?

Regardless of the current limits placed on FSA contributions by employers, beginning in 2013, annual participant contributions to FSAs will be limited to $2,500 – a cap that will be adjusted annually for inflation. 

The new limits will force many to pay higher taxes and health care costs, especially individuals and families battling chronic conditions who rely on their FSAs to cover out-of-pocket expenses for ongoing care and medical supplies.

Over-the-counter medicines such as aspirin, cough syrup and allergy medications will still be eligible for FSA reimbursement; however, a doctor’s note will now be required.

Are FSAs at risk?

With the help of thousands of supporters, FSAs were protected from elimination in the recently-passed health care reform bill.  However, the legislation did include restrictions on the use of the benefit, primarily in the form of a $2,500 contribution cap starting in 2013.  There is no telling whether a threat to FSAs could resurface in the years to come.

Doesn’t the “use it or lose it” requirement of FSAs promote wasteful health care spending and a rush to spend all remaining FSA dollars by year’s end?

No. FSAs allow consumers to effectively plan and fund a personal health budget for an entire year. Generally speaking, a consumer will not put money into an FSA unless they have a high degree of confidence they will actually need it. It has also been shown that FSA spending peaks in February through June, with 65 percent of FSA spending occurring by July 1st.

What can consumers do to protect their FSAs?

Consumers who want to protect their FSAs from future restrictions should contact President Obama and their members of Congress and tell them how they rely on their FSAs and how they will be affected should there be any future restrictions on FSAs.

What is the solution?

Now that the health care bill has passed, President Obama and Congress should protect FSAs from any additional restrictions and allow the program to continue to serve as a safety net and necessary solution to cover eligible out-of-pocket health care expenses.

Does the new legislation affect flexible spending accounts for dependent care?

No. The final health care legislation would only impact health care flexible spending accounts. FSAs for dependent care will continue to have a $5,000 annual limit.