Use it, don't lose it: 4 responsible ways to spend FSA dollars that enhance employee health benefits

There is an important deadline looming for your employees if your organization offers a flexible spending account (FSA). The December 31 use-it-or-lose-it and other FSA deadlines are back this year, as flexibility enacted during the COVID-19 pandemic expires. That means FSA users may have more money to spend before the common year-end deadline – and more money to lose, if they aren’t aware of their deadline and their account balance.

In a normal year, an estimated 48% of FSA users with a traditional year-end deadline forfeit contributions. And this year is anything but typical because the FSA carryover amount and grace period revert back to normal. Unfortunately, there’s a good chance your employees are not aware of these changes and how they could affect them.

This year it’s important for employees to know that if they had a grace period extension or increased carryover amount during the past two years, they could have a 2021 FSA plan still available for use by December 31 and a 2022 plan they need to spend down just a few months later. They may also have a higher balance than ever before due to increased carryover allowance.  And with account balances an estimated 46% higher than they were a year ago at this time, account holders stand to lose even more than the projected $1 billion in FSA dollars they forfeit in a typical year.

Those are potentially significant losses, but you can help employees protect their contributions by educating them on the deadline, encouraging them to check balances and giving them options for how to use their FSA to pay for health items they already buy and services they incur every day.

From everyday health to specialty visits

Your employees pay for products out of pocket every day that they could be buying with their tax-free FSA dollars. According to our calculation, the average household spends approximately $1,600 every year on items that could be purchased with FSA funds. This includes things like menstrual care products and over-the-counter medications. But did you know that you can enhance coverage of specialty benefit expenses – such as fertility benefits, vision care, dental care, and mental health care – by educating employees about related products and services they can purchase and incur with FSA funds?  Here are four timely examples that could benefit your employees and the health of your organization.

1. Virus defense: Flu season is upon us, and an ongoing RSV outbreak has filled hospitals nationwide. This is a good time to remind employees that preventive care like vaccines are FSA eligible, as are OTC medications to treat fever and cough, not to mention masks and hand sanitizer to stop the spread of germs.
2. Orthodontics: Braces can cost anywhere from $3,000 to $10,000, but using pre-tax FSA funds can help defray these costs. FSA contributions can be used for any orthodontic expenses not covered by dental insurance. That includes traditional metal braces, as well as ceramic, lingual, and invisible aligners (provided they are for medical reasons and not solely for cosmetic).
3. Mental health: The past three years have been challenging for mental health, with nearly 50 million Americans experiencing some form of mental illness. Remind employees that they can use their FSA to pay for counseling services, prescriptions to treat their condition, as well as a variety of devices to ease anxiety and support relaxation and mindfulness.
4. Family planning: Whether your employees are trying to build a family or maintain their current headcount, an FSA can support the benefits you already offer in this area or fill an unmet benefits need. For example, fertility treatments, fertility monitors, and pregnancy tests are all FSA eligible, as are birth control and contraceptives.

Surprisingly eligible (or not)

You and your employees may be surprised at everything that’s FSA eligible, and deadline season is the perfect time to explore all the options. Start by connecting employees to a reliable FSA eligibility list so they can learn about surprisingly eligible expenses like home DNA testing kits to identify potential health risks, select deep tissue pain relief devices, migraine relief devices, light therapy treatments, diagnostic devices, and a wide variety of skincare products. On the flip side, employees can use the eligibility list to avoid requesting reimbursements for items that are not FSA eligible, such as toothbrushes and toothpaste, insect repellant, or most vitamins and supplements.

If the use-it-or-lose-it deadline isn’t enough reason to educate employees about FSA eligibility, then think about the money you can help them save – which is top of mind for everyone as inflation continues to soar. For example, an FSA can help employees save up to 30% on health care expenses, based on individual state and federal tax brackets. Those savings are particularly significant now, as the typical American family is spending $445 more each month to buy the same products they were buying a year ago.

Related: More than FSAs: Help employees prepare for open enrollment

Don’t let your employees leave FSA money on the table. By educating employees in these final weeks of 2022, you can help them make the most of their contributions while also helping them stay happy, healthy, and productive.

Rachel Rouleau is chief compliance officer at Health-E Commerce, parent brand to FSA Store and HSA Store.