FSAs: A smart way for employees to save for their wellbeing
For employees to take advantage of their FSA accounts, they need to understand the benefits of doing so.
It’s that time of year again when employees with health care flexible spending accounts (FSAs) need to think about how to deplete funds in their account or risk forfeiting them. FSA remains a popular way for employees to save money on medical expenses and services while at the same time reduce their tax liabilities. Yet many employees don’t understand how health care FSAs work and, as a result, end up forfeiting money. In fact, the Employee Benefit Research Institute estimates that more than 40% of workers with FSAs left money on the table in recent years, losing on average between $339 and $408 a year.
Employers can play an important role to help ensure their employees spend (and not forfeit) their funds. Here’s how:
Encourage and make it easy for employees to know their FSA balance. Your spending accounts administration provider, for example, might send out statements and/or provide a “use-it-or-lose-it” notification. In many cases, employees can sign up for periodic text notifications of their account balance.
Remind employees about your FSA plan’s “run-out” period which provides extra time in 2024 for employees to get reimbursed for 2023 expenses.
Does your plan allow carry over of unused FSA funds (up to the IRS limit) from 2023 for use in 2024? If so, send a communication to employees whose balances exceed that amount since funds over the carryover limit are at risk of being forfeited.
Does your plan, instead, include a “grace period” which allows employees extra time in 2024 to use 2023 FSA funds? If so, early in 2024, you might communicate the deadline to use funds remaining at the end of 2023.
Let employees know that FSA funds can be used for eligible expenses for their spouse and child(ren) even if they aren’t covered under the employee’s medical plan.
Provide employees with a list of common and surprising items that can be purchased with FSA funds:
- Dental and eye care, including eyeglasses, reading glasses, contact lenses, eye drops, and contact lens solution.
- Over-the-counter medicines such as aspirin, cold medicines, cough syrup.
- Thermometers, bandages and first aid kits.
- Pregnancy tests, breast pumps, and baby monitors.
- Allergy medicine.
Help employees take the guesswork out of it!
- Let them know to look at labels when they shop. Some larger-chain drug stores, for example, put an “FSA Eligible” label right on the on the product’s price tag.
- Provide a link to online marketplaces that only sells products that can be purchased with health FSA and HSA funds.
Related: HSA vs FSA: Help employees find the best fit during open enrollment
For employees to take advantage of their FSA accounts, they need to understand the benefits of doing so. Employers should communicate these benefits, framing as a powerful financial decision that can lead to long term savings. FSAs are a great way to contribute to one’s own health and mental wellbeing, while saving tax dollars that can add up. By providing tools and resources that help employees understand the potential of their benefits accounts, employers can help reach the full potential of financial wellbeing.
Lisa Myers is director of client services, benefits accounts, WTW.