How to use up FSA funds before the end of 2023

Use it, or lose it? 

As 2023 draws to a close, many employees find themselves in a familiar predicament — with unused Flexible Spending Account (FSA) funds. FSAs are a valuable benefit that allow employees to set aside pre-tax dollars for eligible healthcare expenses, yet a significant portion of these funds often goes unspent at the end of each year, leaving both employers and employees wondering if there's a better way to leverage this resource.

FSAs offer an excellent opportunity for employees to save on healthcare expenses while reducing their tax liability. However, several factors contribute to their underutilization.

Many employees are unaware of the full range of eligible expenses or the existence of their FSA benefits all together. Often employees view the FSA contribution as an effective tax strategy at open enrollment. Then months pass before they attempt to utilize the intended reimbursement and the FSA details become fuzzy due to lack of use. Employers can play a significant role in addressing this issue through effective and regular benefit communication.

Read more: Open enrollment cheat sheet: The pros and cons of FSA, HSA, and HRA pre-tax benefits

The process of filing reimbursement claims can be perceived as cumbersome and time-consuming. This often discourages employees from submitting claims for smaller expenses. Employers can simplify this process by providing step by step guides, clear instructions and offering support through workshops. Most FSA vendors have easy to use apps. The apps are generally the most efficient method so submit for reimbursement.

The common and infamous "use it or lose it" rule at the end of the plan year leads to a fear of losing unspent FSA dollars. As a result, employees tend to contribute cautiously, rather than maximizing the benefit.

Employer strategies to encourage FSA utilization

Employers are key to helping employees make the most of their FSAs. Here are some effective strategies:

Educational campaigns: Regularly inform employees about FSA benefits, eligible expenses, and deadlines through email newsletters, workshops, webinars, or one-on-one sessions and even text messages. Make sure they know how to access FSA-related resources.

FSA debit cards: Encourage the use of FSA debit cards for eligible expenses. This simplifies the process and removes the need for reimbursement paperwork.

Read more: Why employers should consider adding healthcare credit cards to their benefits

Rollover or grace period: Consider implementing a rollover or grace period for unspent FSA funds. This can alleviate the "use it or lose it" fear and encourage more significant contributions.

Online tools: Provide user-friendly online tools that help employees track their FSA balances, monitor expenses, and set reminders for reimbursement claims.

 Align FSA renewal with group health insurance renewal: Aligning the renewals leads to less benefit complexity and can make it easier for employees to understand how much to contribute to their FSA. Increased medical contributions, plan changes like going to a higher or lower deductible can factor in contribution amounts.

Employee responsibility: Tips for maximizing your FSA

Employees also play a crucial role in making the most of their FSAs and contributing the right amount to an FSA isn't always clear. Here are some steps employees can take to ensure they don't leave FSA dollars on the table:

Plan your expenses: At the start of the year, estimate your eligible healthcare expenses. Consider upcoming medical procedures, prescription medication and even things like dental procedures or vision hardware. This will help you set a reasonable FSA contribution amount.

Read more: Higher deductibles, premiums and co-pays: Aflac previews healthcare in 2024

Keep records: Save receipts and documents for all FSA-eligible expenses. Proper documentation makes reimbursement claims more straightforward.

Use FSA debit cards: Whenever possible, use FSA debit cards for eligible expenses. They simplify the process and eliminate the need for manual reimbursements.

Regularly check your balance: Stay informed about your FSA balance. Knowing how much you have left to spend will help you avoid last-minute scrambles to use your funds.

Know deadlines: Be aware of your employer's FSA plan deadlines, including any grace period or rollover options. Make the most of any additional time you have.

Be informed: Familiarize yourself with the list of eligible expenses. Don't overlook potentially missed items, such as sunscreen, contact lens solution, or certain over-the-counter medications.

The bigger picture is that FSAs are a win-win situation for both employers and employees. It's crucial to recognize that FSAs are not just a benefit; they are a partnership between employers and employees. Employers benefit from a healthier and more financially secure workforce, while employees enjoy tax savings and financial relief. By working together, both employers and employees can ensure that FSA dollars are not left unused at the end of the year, creating a more financially secure and satisfied workforce.