Spending in good health: Changes create new opportunities for FSA users

After years of legislative improvements moving at a glacial pace, the past year has seen dramatic changes for flexible spending accounts (FSAs). While consumers experienced restricted access to in-person care because of COVID-19 — which made it difficult to spend down FSA balances on traditional clinical services — the public health crisis spurred action that resulted in many positive changes, including greater FSA flexibility.

Related: How to help families with dependent care FSAs

For starters, legislation like the CARES Act expanded eligibility for products like over-the-counter medication and menstrual care items, giving account holders more flexibility in how they spend their account funds. Meanwhile, the Consolidated Appropriations Act 2021 (CAA) gave employers several temporary options to change or remove spending deadlines and to extend rollover options for the 2020 and 2021 plan years.

FSA use remains steady

How have these new options and expanded eligibility, along with greater awareness and consumer focus on health and well-being during COVID, impacted FSA users? According to a recent customer survey conducted by FSAstore.com, the first online marketplace for exclusively eligible FSA products, FSA users are contributing more to their accounts in the 2021 plan year than they did in 2020 — from $1,800 per household last year to $1,860 this year (individual account contributions may be less). Consumers are also increasingly savvy about spending those contributions. Among FSAstore.com customers surveyed, 64% said they forfeited less than $25 in unspent contributions at the end of their plan year.

Make employee education a top priority

With the popular FSA grace period deadline coming up on March 15, this is the perfect time to examine how changes over the past year have reshaped the FSA landscape, and how pending legislation may allow FSA holders to further maximize their contributions while helping to prevent the spread of COVID-19. Following are three key changes account holders should understand.

1. Expanded eligibility. Stimulus payments for most Americans were the headline feature of the CARES Act when it passed last year, but the legislation also made meaningful changes to give FSA users more flexibility in how they spend their money. The CARES Act made menstrual care items like tampons and pads FSA-eligible for the first time, and removed prescription requirements for purchase of over-the-counter medication like ibuprofen and Claritin.

   This expanded eligibility created important savings opportunities for anyone who uses menstrual care products, and with the average woman spending $6,360 in her lifetime on such products, the savings potential is significant. The change to eligibility rules for OTC medications is equally significant, because removing the prescription requirement makes it easier for shoppers to use FSA (and health savings account) funds to manage their everyday health year-round.

2. Temporary rule changes. The CAA legislation introduced a number of temporary rule changes that employers can offer to loosen deadlines and allow employees to rollover remaining funds. To reduce confusion for employees and lessen questions for your human resources team, be sure to educate employees about which, if any, of these options you have adopted, and what it means to them.

   Early indications based on the FSAstore.com customer survey indicate that those changes have not yet had a significant effect on the habits of FSA users. In fact, among respondents to the FSAstore.com survey, 62% said they would not change their spending if these new rules were offered to them, while 30% percent said they would spend more. Still, it’s important for individuals to understand the options that are available to them.

3. PPE eligibility. Personal protective equipment (PPE) like masks, gloves and hand sanitizer have become essential for most people during this pandemic. The CDC recommends masks for public settings, and 35 states plus Washington, D.C., and Puerto Rico all have rules in place requiring masks in public places. However, PPE and hand sanitizer are not yet broadly eligible for FSA spending. That could change if legislators pass H.R. 373, which makes masks and hand sanitizers eligible for purchase with FSA (and HSA) funds. Consumer support for this measure is strong and FSA users say they would take advantage of this option. In fact, more than 70% of respondents to the FSAstore.com customer said they would allocate $50 or more each year from their FSA to cover these products.

Consumers have demonstrated great resilience and perseverance throughout this pandemic, while employers have shown that they care about and support the well-being of their workforces. But, there is still work to do to educate and make employees aware of the upcoming grace period deadline and other temporary changes that could impact their health and finances as we progress through the remainder of 2021.

Rachel Rouleau is the vice president of compliance for Health-E Commerce, the parent brand of FSAstore.com, HSAstore.com, and WellDeservedHealth.com.

Read more:

• How HSA and FSA use has changed amid the COVID-19 pandemic
• 5 ways the CARES Act affects HSAs, FSAs and HRAs
• Did you know? Amazon now takes HSA, FSA payments