For plan years beginning after December 31, 2012 the amount that can be placed into a flexible spending account (FSA) is limited to $2,500 by the Affordable Care Act. While this new limit will reduce the value of such plans for individuals with large out-of-pocket expenses (dental expenses, orthodontics, vision expenses), there is still value in placing money in an FSA. Placing money in the FSA for services such as chiropractic care that may be limited by a health plan is also valuable. Nationally over 150 million workers have an FSA available, but less than 25% take advantage of such accounts. Many people are leaving money on the table.
Open enrollment periods for most health plans are only a month or two away so now is the time to plan for FSA contributions.
There may be some good news in the future. The Treasury Department is looking at the use it or lose it rule. That’s the rule that says if you do not use all the money in your FSA within the play year it is forfeited. The IRS is open to the change because the maximum amount is reduced to $2500 and the potential revenue loss to the government is lower.
There are two basic possibilities should the Treasury approve a change:
- Unused amounts may be carried over to a subsequent year, still subject to the $2500 limit. That is, if the employee placed $2500 in the FSA in year one, but used only $2,000, he could add $2,000 in the subsequent year and still have $2500 available.
- Or, the employee could simply receive a refund of the unused money up to a certain limit; $500 has been mentioned in this regard.
Aside from the general use of the FSA to help pay for deductibles and co-pays or certain expenses not reimbursable under a plan, the use of the FSA also provides flexibility for the employee in choosing the basic health plan. That is, they can choose a less costly plan in terms of premiums, but with potential higher out-of-pocket costs, and ease some of that risk by using the flexible spending account.
When open enrollment arrives this year, take a few minutes to compare the options you may have, their premiums and out-of-pocket costs and see if leveraging the value of the FSA can provide a better overall financial result for you next year.
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