Making the Most of Your Medical Flexible Spending Account

Flexible Spending Accounts (FSA) are a great way to save on taxes and help reduce the burden of increases in medical costs. Following are some impending changes in the regulations along with some practical tips to help you make the most of your medical FSA.

Beginning January 1, 2011, over-the-counter drugs will only qualify as reimbursable from your FSA if you have a prescription from your doctor. Incidentally, this change also applies to Health Savings Accounts. If you have remaining funds in your FSA, it may make sense to stock up on these items before the December 31, 2010 deadline. In addition, starting next year, you may want to ask your doctor to write a prescription for some of your over-the-counter drugs, particularly if you use some of the more expensive ones like Claritin or Prilosec. Since these drugs are available either over-the-counter or by prescription, you should first check to see if they qualify under your prescription drug program, and how much the co-pays or deductibles are.

Because of this change for over-the-counter drugs, it will no longer be possible to use an FSA debit card to purchase these, even if you have a prescription. It will be necessary to save your receipts along with the prescription and file a claim to receive your FSA reimbursement.

The new Affordable Care Act requires non-grandfathered insurance plans beginning on or after September 23, 2010 to cover certain preventative services without your having to pay a copayment, coinsurance, or meet your deductible. Covered services include many types of cancer screening and immunizations, and a complete list is available at www.healthcare.gov/law/about/provisions/services/lists.html.

Fully-insured health insurance plans maintained pursuant to a CBA ratified before March 23, 2010 are automatically grandfathered until at least the termination date of the agreement. If certain conditions are met, the grandfather status may be extended. If your plan is not grandfathered and you are required to pay for preventative care and you have previously been allocating a portion of your medical FSA to pay for these services, it would be a good idea to recalculate the amount to contribute.

Another way to make the best use of your FSA is to find out if your plan has instituted the optional 75-day grace period, a feature which allows the use of remaining funds from the current year’s contribution until March 15th of the following year. This is very helpful in avoiding the “use it or lose it” rule whereby unspent FSA dollars are lost at the end of the plan year. Check with your HR department or FSA plan administrator to see if your plan offers this feature, and if not, it is something to consider asking your employer to add.

Interestingly, the rules have not changed for medical devices and supplies, which continue to qualify for reimbursement without a prescription. These are also things that you can purchase to use up the money in your account before the end-of-year or grace period deadline.

* Adult incontinence products

* Birth control

* Contact lenses and solution

* Denture adhesives

* Diabetic supplies (including insulin)

* Ear supplies (e.g., ear plugs)

* Eyeglasses

* First aid supplies (e.g., band-aids)

* Health monitors (e.g., blood pressure devices, kits to test cholesterol or for HIV, thermometers)

* Hearing aids and batteries

* Heat wraps and pads, hot water bottles

* Supports/braces (e.g., ankle or wrist wraps and braces, therapeutic gloves)

Another change is coming January 1, 2013, when medical FSA contributions will be capped at $2,500 per year adjusted annually for inflation.

by Joseph Goldman, Benefits Analyst, AFM Symphonic Services