Flexible Spending Plans
Flexible spending plans let you set aside money from your paycheck. You can use it to pay for care before meeting your deductible, and for copays and coinsurance afterward. You may also be able to use the money for glasses, contact lenses, medical devices and other types of services. The contribution comes out of your salary before taxes. So, these plans can help you stretch your dollars to cover a larger share of your out-of-pocket medical costs. You often can decide how much to save, up to a certain limit. Your employer may put money in your account, too. Think carefully about how much to save. Some plans don’t let you carry money over from year to year, or from job to job.
Types of flexible spending plans include:
Flexible Spending Arrangement (FSA).
Workers contribute to this plan through deductions from their paycheck. Sometimes employers contribute to the plan, as well. This is a “use it or lose it” plan. You cannot carry money over to the next plan year.
Health Savings Account
Workers contribute to this plan through deductions from their paycheck. Sometimes employers contribute to the plan, as well. The account is yours. You can carry money from one year to the next, to a new job or even into your retirement. But, you pay large penalties for using the money for things other than medical costs.
Health Reimbursement Arrangement (HRA).
Employers alone contribute to this plan. You may be able to carry money over from year to year, depending on the plan. But, you cannot take it with you to a new job.
To manage costs using a flexible spending plan:
Use the FH Medical Cost Lookup or the FH Dental Cost Lookup to estimate how much you might pay for the services you need.
Talk to your providers. They may be willing to negotiate fees, take payments in installments, or order less costly drugs or treatments.
Review your family’s medical costs at the end of each year. Include deductibles, copays and coinsurance. Use that information to plan how much you may need to save in your flexible spending account.
What’s a flexible spending plan?
Some employers offer a special type of savings account to help you cover some of your out-of-pocket medical costs with pre-tax dollars. If you have one of these flexible spending plans (FSPs), you can set aside money from your paycheck to help pay for qualified medical expenses like copays, deductibles and coinsurance. You may also be able to use the money in your account for glasses, contact lenses and medical devices. Because the contribution comes out of your salary before taxes, FSPs can help you stretch your dollars to cover a larger share of your out-of-pocket medical costs. It’s important to note that these types of plans are set up and maintained by you and your employer—your health insurer is not involved.
Types of FSPs
There are three main types of FSPs—flexible spending arrangements (FSAs), also known as flexible spending accounts; health savings accounts (HSAs); and health reimbursement arrangements (HRAs).
Each of them has different features and rules.
Your Action Plan: Know Where to Go
The IRS changes the rules regarding FSPs regularly, and health reform law may require additional changes, too. If you are enrolled in an FSP, it’s important to stay up to date on new developments, like changes in qualified medical expenses, limits and early withdrawals.
- Read your plan documents carefully. Flag any questions and speak to your employer’s human resources department to clarify them.
- Take advantage of online tools, such as the ones on this website, to help you plan your medical and dental care expenses.
- Keep current on the IRS publication that details qualified medical expenses.
Taking the time to stay current can help you get the most out of your flexible spending plan account, and avoid any unwelcome surprises.