The scenario is all too familiar for employers and human resource managers: The year ends, and employees still have unspent funds in their flexible spending accounts. Whether employees forget that the money in their FSAs must be used or it will be lost, or they simply aren’t aware of which expenses can be covered by FSA funds, their frustration at losing money often falls on the employer.
Reminding employees which expenses are eligible to be covered by an FSA can help mitigate headaches for employers and HR departments in the new year and shed light on lesser-known options for making the best use of remaining funds before the end of the plan year.
As a general rule, an eligible expense is any medical expense the health plan doesn’t cover. This includes things such as out-of-pocket costs, co-pays, co-insurance, hospital visits and prescription drugs. Employees also can apply their FSA funds to dental and vision expenses, which often are not covered in health insurance plans.
Some eligible expenses employees might not be aware of include
The IRS determines which expenses qualify for FSAs and maintains a list on its website. Most FSA administrators have lists on their websites as well. FSA-holders can either search for individual expenses or scroll through the list to see what opportunities they might be missing. But it’s a good idea for employers to provide those lists for employees.
In addition to reminding employees what types of expenses are eligible for coverage by FSA funds, employers should review if their plan has a grace period, runout or rollover. If so, employers should communicate the details with employees, as this can help them take full advantage of the time they have to incur expenses and submit receipts for reimbursement.
A grace period is the amount of time an FSA-holder has after the end of the plan year to spend unused funds or incur expenses. A typical grace period is up to 2.5 months after the plan year ends. A runout is the amount of time an FSA-holder has after the end of the plan year to submit claims for reimbursement. In this case, expenses must be incurred before the end of the plan year. An FSA rollover allows up to $500 to be carried over from one calendar year to the next.
Employees also might not be aware that they can use FSA funds on a medical dependent, whether that dependent is covered by the FSA-holder’s health plan or not. For instance, if an employee has a 24-year-old daughter not covered by the employer health plan who needs a co-pay for a doctor appointment covered, the employee can use their FSA.
Lastly, it’s also important to make it clear to employees the distinction between an FSA and a health savings account. While many of the same expenses are eligible for coverage by either an FSA or HSA, make sure to remind employees about a few key distinctions. An HSA is not “use it or lose it.” All funds roll into the new year and do not need to be used up before the end of the plan year. And for an employee to use his or her HSA to cover a dependent’s medical expenses, the dependent must be a tax dependent.
Helping employees make the best use of their FSA funds before the end of the year not only positions the employer as a hero for saving employees’ hard-earned money, but it inevitably saves the employer from a headache heading into 2019.
