FSAs gain popularity as health care costs keep rising
New report indicates FSAs saved $30.7B in 2020; two-thirds of employers will offer them in 2023.
Flexible spending accounts (FSAs) are gaining recognition for their money-saving benefits on everything from doctor visits, over-the-counter medications, and vision care to bandages, crutches, and hospital beds. In fact, an estimated $30.7 billion was saved in FSAs in 2020 — an 8.7% increase over the previous year — according to medical equipment supplier AvaCare Medical.
“Medical supplies and equipment are among the most common purchases made with FSA funds, ranking as the third most common type of FSA spending,” notes a new report from AvaCare Medical. “With their tax-free benefits and ease of use, FSAs are an excellent way to save money while providing much-needed medical supplies and services. As the data indicates, flexible spending accounts are becoming increasingly popular, and the amount of money placed into these accounts is growing.”
While more than $1 million in FSA funds expired Dec. 31, the average contribution limit for FSAs is set to increase in 2023 — the result of the Internal Revenue Service adjusting the FSA contribution limits for inflation.
“At the same time, the dollar amount of money that individuals and businesses are placing into FSAs is also increasing,” the AvaCare Medical report states. “According to data from the [IRS] and the Bureau of Labor Statistics, the average amount of money placed into FSAs has increased every year since 2015. In 2022, the average amount of money placed into FSAs was estimated to be $2,400.”
Read more: More than FSAs: Help employees prepare for open enrollment
Employers, too, are recognizing the potential tax savings and other benefits FSAs offer them. The National Business Group on Health found that the percentage of employers providing FSAs increased from 52% in 2015 to 60% in 2019. That trend “is expected to continue into 2023, with 66.3% of employers offering FSAs, making for an increase of 27% in less than a decade,” the report notes, concluding that FSAs likely are gaining popularity “due to the rising cost of health care.”