Question: How can I make better use of a Flexible Spending Account?
From: Virginia G. of Santa Cruz, CA
Answer: A Flexible Spending Account (FSA) is essentially a cafeteria plan offered through an employer. It provides a tax advantage by allowing the employee to designate a non-taxable amount to be set aside from earnings to pay for qualified expenses within the cafeteria plan. The employee then submits for reimbursement from the FSA. It is more often used for medical expenses but may allow for dependent care. Medical expenses not paid by the health insurance plan, such as deductibles, co-insurance, dental, vision, over-the-counter medicine and mileage reimbursement for medical visits, are eligible for reimbursement. Items reimbursed must be to treat or prevent a specific medical condition. Ineligible items include health insurance premiums, cosmetic items, and cosmetic surgery (non-elective cosmetic surgery is eligible). Money not reimbursed to the employee is forfeited.
There are several steps to take to make sure you are reimbursed appropriately. Keep all medical receipts/statement from the provider for which you want to be reimbursed. Make sure they show the provider’s name, reason for treatment or visit, date of service, charge for the service, and amount paid by patient. The plan will define the time frame during which services rendered may be reimbursed and will also define the time frame by which application for reimbursement must be made so be sure to submit within the allowable time frame. In 2005, the IRS authorized employers to allow a 2 ½ month grace period after the plan date to seek reimbursement. You may seek reimbursement at one time or periodically throughout the time period. You may also seek full reimbursement from the plan if you have spent the complete amount of your projected deductions but you will continue to have the money withheld from your pay. Deciding how much to have deducted from your earnings should be done carefully. Make a list of out-of-pocket expenses for yourself and your dependents. Remember that unused money is forfeited. Lastly, effective 1/1/08, approved merchants (grocery stores and discount stores) are required to have inventory systems which can identify healthcare purchases and over-the-counter items each time you use a health care debit card.
Ruthann Russo, PhD, JD, MPH, RHIT, is a healthcare expert with more than 20 years of experience working in and advising healthcare organizations.
