Flexible Spending Accounts offer substantial savings on qualified health care expenses. Setting up an FSA is relatively low cost and pain free for an employer, and adds significantly to the employer's overall benefits offering.
Employers decide the maximum contribution they wish to allow for their FSA, up to a maximum of $2,750. Employees opt into an FSA each year during open enrollment. Employees can then use their FSA toward a variety of out-of-pocket expenses including dental and vision care, medical services, and medical products and supplies. Often, FSA eligible expenses are those that are not covered by an employees' traditional health insurance plan. The FSA balance is available in full for use starting on the very first day of the plan year, although employee contributions are taken evenly throughout the year.
Perks of an FSA
-Employees save up to 40% on the money they contribute to an FSA.
-FSA funds are exempt not only from income taxes, but also from payroll taxes for Social Security and Medicare, resulting in savings to the employee and employer.
-Increased spendable income for employees.
-FSAs offer an additional employee benefit in the overall benefits package.
Third Party Administrators (TPAs) are a great resource for employers as they have extensive knowledge about FSAs. FSAs can be complicated, so having a TPA handle them is also time effective for employers. FSA administration also requires HIPAA and ERISA compliance, and TPAs can typically provide an employer with the required documents and administrative materials necessary to remain compliant.
Employers decide which expenses they deem FSA eligible (in compliance with IRS guidelines), and have a say in the plan structure, which is explained for employees in the required Summary Plan Description. The Summary Plan Description describes all the details of the FSA – coverage questions, enrollment information, claims handling, which expenses qualify as eligible and more, and is necessary for ERISA compliance.
Not sure when your FSA deadline is? Do you understand the recent “Use it or Lose it" changes made to FSAs? Learn more on our blog post about FSA Use it or Lose it Changes