Although we think flexible spending accounts are rather dumb and have become more so over the years due to their limitations, (explained below), they are touted as a benefit by employers so many get seduced and participate. In the video I forgot to mention the specific article which was the basis for the video so let me do that, FSA vs HSA: What to Know about the Accounts that Pay Medical Costs, the New York Times, May 17, 2024.

One disturbing issue raised in the article is that a 2022 survey concluded that, on average, FSA subscribers forfeited $441 in 2022. Remember, these are “use it or lose it” accounts so that money goes back to the employer! There is no reason for this to happen! If you have a flexible spending account but haven’t had the out-of-pocket medical costs you anticipated, go to a site like fsastore.com (no affiliation) to use up any funds left in your FSA. As you can see, a wide variety of over-the-counter items can be legitimately purchased through an FSA – sunscreen, glasses, contact lenses, first aid kits, and band-aids to name a few.

The author probably rightly suggests that because deadlines were loosened during the pandemic, many people didn’t take notice when filing deadlines were reimposed. But, again, there is no reason to lose that money even if you had far fewer out-of-pocket medical expenses than anticipated. Check when your FSA administrator’s deadline is for using up prior year funds (most plans have a grace period into the next year but this is not required, and your deadline might be 12/31) and set an alarm in your calendar to go on an FSA shopping spree a week or two in advance of that deadline.

The Revenue Act of 1978 created flexible spending accounts. They are only for people who have coverage through an employer and healthcare coverage through an employer is a benefit that is typically heavily subsidized by the employer. There was no similar relief at that time for those paying their own health insurance premiums. That doesn’t seem sensible or fair.

The accounts allow account holders to pay for medical expenses with pretax dollars. But after all these years, the maximum one can put into one of these accounts in 2024 is only $3200 per employee. This year the out-of-pocket maximum for ACA-compliant plans can be up to $9100 so there is a disconnect for many between their potential exposure and what they might put into a flexible spending account.

And many people can’t predict when a year will be a significant year for out-of-pocket medical expenses.

Flexible spending accounts can be time-consuming to administer. Of course, it’s reasonable that one has to provide documentation of the service and what one’s out-of-pocket exposure was but if you do this work to recoup a copayment, you’ve devoted a great deal of time for relatively small dollars. And, finally, we’ve established this entire bureaucracy for the pleasure of forgoing a small portion of one’s salary which for many is going back to the employer’s coffers.

Let’s just eliminate medical flexible spending accounts and expand access to health savings accounts and be done with it. But that’s a subject for another day. Thanks for reading.