What Is a Flexible Spending Account?
Managing health care costs can feel overwhelming. From everyday care items to extensive medical procedures, these expenses add up throughout the year. Luckily, you have a variety of options to reduce overall medical costs.
One option is a flexible spending account (FSA). These employer-sponsored accounts let you save money from your paycheck for medical expenses. All funds are exempt from taxes, allowing you to save money annually. Committing to an FSA can bring many benefits for you and your family. Read on to learn more about flexible spending accounts and how Health for California can help.
What Is an FSA?
A flexible saving account allows employees to set aside money to cover qualified out-of-pocket medical expenses. You deduct money from your paychecks for deductibles, copayments, coinsurance and some prescription drugs. FSAs are limited to specific annual amounts — as of 2023, you can add up to $3,050 to your account.
FSAs work similarly to savings accounts. You don’t pay taxes on the funds, saving you money in the long term. Employers sponsor the accounts and can contribute to the funds if they choose. You can use your FSA to cover expenses for you, your spouse or your dependents’ medical expenses.
In addition to FSAs for health care expenses, two other types of FSAs are available:
- Dependent care FSA: The dependent care FSA lets employees put money towards dependent responsibility costs so you can work or attend school. Qualified expenses include daycare or afterschool care for children or elder care.
- Limited purpose FSA: A limited purpose FSA only covers specific expenses like vision and dental services. It also covers related over-the-counter products.
How Does an FSA Account Work?
You can enroll in a flexible spending account during your company’s open enrollment period. During this process, you estimate your medical expenses for the following year and decide the number of funds to put into your account. Your employer should also inform you whether they contribute to the account during enrollment.
After you finalize the amount and complete registration, your company finalizes your account. A portion of the funds is removed from each paycheck and placed into your FSA. To pay for qualified expenses, you can use a credit or debit card. You can also use your own money and request reimbursements afterward.
You need to use all the funds from your FSA during the plan year. Unspent money returns to your employer rather than transferring to the next year. However, your employer can provide two additional options if you don’t get to use all of the funds:
- A grace period: Your employer can offer a grace period of up to two and a half months after the original plan year ends. You can use the remainder of your FSA funds during that time.
- Rollover opportunity: They can also allow you to carry over up to $500 worth of funds into the new year.
These safety provisions are up to the employer’s discretion and are not automatically available. It’s important to ask about your company’s policies during the enrollment period to understand whether you have access to these options.
What Services Are Eligible for Flexible Spending Accounts?
You can use your FSA account to pay for a wide range of medical products and services. To qualify for an FSA, the product must abide by the Internal Revenue Service’s (IRS) definition of medical care. The official FSA Store lists over 4,000 entries, ranging from everyday products to specific medical procedures.
For instance, you could use your FSA for options like:
- Medications: FSAs cover many prescription and over-the-counter drugs. You can use the funds for medications for allergies, headaches, nausea, pain relief, sinus health and more.
- Emergency services: FSAs are also eligible for emergency services, such as ambulance expenses or emergency room costs.
- Screenings: You can use your FSA to pay for screening tests that detect the presence of disease or illness before symptoms show. They also cover preventive services like vaccines and annual check-in appointments with physicians.
- Therapy: FSAs also cover costs for therapy services like physical therapy or substance abuse treatment.
- Dental care: You can apply FSA funds toward many dental needs, like cleanings, surgeries, orthodontist appointments, braces, dentures and more.
- Over-the-counter products: You can also use your FSA money for everyday care purchases like bandages, face masks, hand sanitizer, diapers, tampons, eye drops, sunscreen and more.
Benefits of Flexible Spending Accounts
Flexible spending accounts can ease financial burdens for health care costs. Enrolling in an FSA provides benefits like:
- Withholds portion of taxable income: An FSA withholds a portion of your taxable income. If you place $1,000 in your FSA, the IRS won’t deduct any taxes from the amount. You save money on necessary medical items that you would normally pay for with out-of-pocket fees. You can also apply FSA funds toward your spouse’s or dependents’ medical needs, lowering the tax burden for your entire family.
- Saves money on everyday items: FSAs cover many medical expenses, including everyday care products. Thousands of items are eligible for FSA funds, preventing you from paying directly for medical care.
- Online tracking accessibility: Many FSA plans offer online capabilities that make FSA management easier than ever. You can easily track your FSA balance through online portals. These also distribute FSA cards to simplify purchases. These cards sync with your online account and make it easier to track spending over time. Other online services provide resources about eligible products you can consult anytime.
However, it’s crucial to remember your FSA funds don’t roll over from one year to the next. Your employer might not offer a grace period, causing you to lose the money you haven’t spent. To gain the full benefits of your account, it’s best to estimate your medical expenses beforehand. A general idea of average spending allows you to spend more purposefully throughout the year.
Request a Quote From Health for California Today
A covered flexible spending account is beneficial for many, allowing you to save money and cover health care costs. If you’re interested in starting an FSA or switching to a new insurance plan, choose Health for California today. Our dedicated team of insurance specialists helps you find the best insurance solution for your needs.
From browsing available plans to the enrollment process, we guide you through the entire selection process. All of our agents have licenses from the California Department of Insurance and use their expertise to help you as closely as possible.
To learn more about FSAs or enroll in a new plan, request a quote from Health for California today.
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