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Flexible Spending Accounts; What are They and Why are They at Risk?

February 20, 2010

The government is proposing to tax everything over $2500.  The problem, however, is that to people who put more than $2,500 away each year, this looks an awful lot like a tax increase and President Obama promised that no family earning under $250,000 would see higher taxes.

There is no legal limit on how much you can set aside each year, though employers generally set a cap around $4,000 or $5,000.  The House-Senate Joint Committee on Taxation figures this will allow the government to take in $14.6 billion from 2011 and 2019. So far so good right? We have to pay for the health care bill somehow.

How they work

1.  You take money out of your paycheck once to finance the account.

2. Then you reach into your wallet for the health care expenses themselves, effectively fronting the money for a second time.

3. Finally, you gather all your receipts and send them in for reimbursement. (they want to ensure exactly what you purchased)

Cons

  • If you don’t use it you lose it
  • It can be a hassle to document expenditures and get reimbursed
  • Must work for an employer who offers FSA (Self-employed individuals are not eligible)
  • Large families also often set aside much more than the proposed limit.
  • They will lose out if the $2,500 cap stays in place.

What a Flex Account covers:

  • Child care expenses
  • Co-pays
  • Deductibles,
  • Birth control/abortion,
  • Lasik and
  • Eye glasses.
  • Braces are eligible, too.
  • Diabetes or asthma medication or treatment for other chronic conditions.

Facts:

Average salary of its participants is about $55,000.

There are about 35 million people covered under health care flexible spending accounts

6 ways to maximize

1.  Review past years cost

2.  Set aside money for major work

3.  Save all receipts

4.  Know the rules

5.  Buy medicine with leftover funds

6.  Don’t be afraid to lose it.

What’s Covered

http://www.drugstore.com/templates/browse/default.asp?catid=59875&trx=GFI-0-ROTABS&trxp1=59875&trxp4=33251

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