Life is full of surprises. When it comes to life events, there are those that happen unexpectedly and those that you plan for. When you sign up for a Flexible Spending Account (FSA), you must stick to a specific budget, or contribution per year. It's important that you think carefully about that contribution amount by taking into account expenses for medical visits, routine dental and eye care, and over-the-counter products you need.
But, what you elect to contribute to an FSA during your company's yearly open enrollment isn't necessarily set in stone. As mentioned earlier, qualifying life events can occur that alter your necessary coverage. The birth of a child, marriage, or a change in employment, will all affect coverage for your FSA plan. So if you envision that FSA changes may be on the horizon, developing a plan of action and working with your employer to get everything updated is essential.
When such an FSA qualifying event occurs, many (but not all) employers allow you to make a mid-year election change to your FSA. Let's dive in and explore how you can best navigate FSA qualifying events.
Defining Qualifying Events
A qualifying event affects your eligibility for FSA coverage, and you can only make changes to your FSA that are "consistent" with that event. Always contact your third party administrator (who handles your FSA account) about qualifying events, or check your Summary Plan Description for guidelines on which changes you are allowed to make under your plan. As mentioned before, not all employers or FSA plans allow employees to make mid-year changes.
Examples of Qualifying Events
- Changes in marital status such as a marriage, divorce, annulment, death of a spouse or a legal separation are all qualifying events.
- Changes in the number of (tax) dependents such as through birth, death or adoption would affect FSA coverage.
- Employment changes certainly would affect plan coverage. Maybe you just started a new job or changed from a full-time or part-time position. Unlike a Health Savings Account, your FSA does not transfer with you as you leave your job – so be sure to use remaining funds, if you know you're leaving. Employment changes not only impact you, but your dependents' coverage, as well.
- Eligibility requirements for children. It's also important to keep in mind coverage eligibility requirements for your children. Under the Affordable Care Act, non-dependent children under the age of 27 years old are eligible for FSA coverage.
- A change in residence might also be an allowed change, but only if the move directly affects your coverage.
- Sometimes a Health FSA plan may allow for a change (for the employee, spouse or dependent) due to a COBRA qualifying event. This is at the discretion of the employer. For example, let's say that Anne goes from a full-time job to a part-time job, loses her health coverage, and opts into COBRA. She could increase her tax-free contributions under her current employer's plan because she lost eligibility of normal coverage as she lost work hours.
- A Health FSA plan might allow for a mid-year change due to judgments, decrees, or orders resulting from a divorce, annulment, legal separation or a change in legal custody. It would have to affect health or accident insurance coverage for a (foster) child who is a dependent. You would be able to add or cancel coverage for a child.
- A change in election is also possible (if allowed by the company and FSA plan) if an employee is entitled to Medicare or Medicaid. Employees can adjust the election to cancel, increase or reduce health coverage.
- Leaving under the Family and Medical Leave Act (FMLA) would let employees revoke elections of group coverage or continue group health coverage. This depends on what the FSA plan allows. Employees have a few options when it comes to FMLA and continued coverage during unpaid leave. They can prepay contributions (pre-tax), they can make payments along the way, or they can pay after returning from the leave.
Contacting Your Third-Party Administrator
You should always check in with your TPA within 30 days of the qualifying events. Your Summary Plan Description defines which (if any) qualifying events allow you to make changes under your plan.
Update: As of March 2020 with the passage of the CARES Act, the OTC Rx requirement has been repealed and prescriptions are no longer necessary to purchase over-the-counter medicines with an FSA or HSA. Additionally, menstrual care products like tampons and pads are fully FSA-/HSA-eligible. Learn more here.
All this talk about the Patient Protection and Affordable Care Act (often referred to as PPACA, ACA, or Obamacare) brings a lot of questions about changes.
The ACA creates a rule for processing medical expenses - particularly over-the-counter medicines or drugs. Since Jan. 1, 2011, over-the-counter medicines and drugs require a prescription for FSA reimbursement. The IRS discusses questions about ACA changes on OTC medicines here.
For example, if you're looking to buy Advil or Aleve, you'd need a prescription in order to use your FSA funds. You can still buy insulin without a prescription, since it's the only medicine to which the rule does not apply.
If however, you want to buy non-medicines, you can still get thousands of products without a prescription. Browse FSAstore.com for the largest selection of FSA eligible products you can buy with an FSA card!
Which OTC items require a prescription?
View our FSA Eligibility List to get a better idea which OTC items require a prescription.
Examples of prescription items:
- Acne treatments
- Allergy medicine
- Diaper creams
- Nicotine patches
- Cold & flu medicines
Does FSAstore.com process prescriptions?
Yes, you can submit a prescription to us in three ways:
1. Provide your doctor's information and we'll handle it from there.
2. Directly mail a prescription to us.
3. Your doctor can fax or electronically submit prescriptions to our pharmacy partner.
Learn more aboutFSA Eligible Prescription Processing at FSAstore.com.
If you follow the daily news cycle, you cannot ignore how heavily discussed health care reform is. Each day a story breaks about the implications of health reform whether it has a positive spin or negative commentary.
What does a Flexible Spending Account have to do with it? And, more importantly, why does it matter if President Barack Obama has an FSA?
The New Yorker humorously chronicled what would be President Obama's "open enrollment" decisions. Of course, the FSA made an appearance!
"He was annoyed to find that he had not used up the amount he’d set aside last time, since now that money would disappear. He was about to type zero dollars into the field when he saw that there was a whole list of items and services you could purchase with your flexible spending account, and the list was huge. Nasal spray was covered. Tylenol. Massages? He entered the same amount as last time, and wrote himself a reminder: “Get massages. Use flexible spending.” - Via The New Yorker.*
Note: The costs of a massage just to improve general health don't qualify. However, if massage therapy is recommended by a physician to treat a specific injury or trauma, then it would qualify. To show that the expense is primarily for medical care, a note from a medical practitioner recommending it to treat a specific medical condition is normally required.
Health Reform FSA Implications
Now, let's get back to health reform. Here is how the Affordable Care Act is changing Flexible Spending Accounts:
2011 OTC Prescription Changes
Since Jan. 1, 2011, over-the-counter medicines require a doctor's prescription. Thousands of FSA eligible products and medical supplies do not require a prescription.
- Non-Prescription FSA eligible products: Breast pumps, band-aids, shoe inserts, blood pressure monitors, steam vaporizers, saline solution, thermometers, and hot/cold packs.
If you're new to the FSA, here's the latest information you should know:
Flexible Spending Account plan years starting Jan. 1, 2013 are limited to annual contributions of $2,500 per person. That amount may not sound substantial, but don't fret.
You can maximize your FSA use by considering the following:
- Before you even enroll, think about possible health care expenses you might face for the year. It's especially easy if you rely on an FSA calculator to estimate these FSA eligible expenses including over-the-counter products, visits to specialists, and routine eye and dental care.
- The contribution limit is based on the rate of inflation and could therefore increase each year.
- Mercer's 2009 National Survey of Employer-Sponsored Health Plans estimated that employees only contribute $1,424 on average to an FSA. If you inch closer to $2,500, simply lay out how the FSA can best meet your needs. Remember that these plans offer significant tax savings as well (up to 40% on each dollar contributed).
- If your spouse can opt into the FSA then your shared contribution limit will go up to $5,000. Employers set their own contribution limits so it is best to check in with them about your individual plan.
- Monitor your FSA use throughout the year to ensure you're getting the most out of it before deadlines hit. It's your money and you wouldn't want to lose it.
FSAStore.com features thousands of eligible products and services, as well as listings of health care providers.
Last year, Mr. Miller decided to capitalize on what he learned, launching FSAStore.com, an e-commerce site in Manhattan devoted solely to FSA-eligible items and services. The online hub features thousands of FSA-eligible products that it ships to customers within two to three days. It also lists a roster of 300,000 health care professionals, from acupuncturists to dentists, indicating which of their services are and aren’t FSA-eligible.
With 35 million Americans covered by flexible spending accounts—in which they lose money they don’t use by the end of the year, and thus are eager to drain—investors are paying attention. FSAStore.com garnered $800,000 in venture financing last May from an investor group led by Point Judith Capital, after securing about $125,000 in startup capital, including $60,000 from Menlo Park, Calif.-based angel investment fund Opal Moon, $25,000 from Columbia’s Eugene M. Lang Entrepreneurial Initiative Fund, and the remainder from family and friends.
David Martirano, co-founder and general partner at Point Judith Capital, said the “very confusing” environment surrounding FSAs provides FSAStore.com—as an exclusive purveyor of FSA-eligible products—with a “huge opportunity” to educate its customers and help them manage their FSAs.
FSAStore.com has so far attracted more than 5,000 registered users across the country, including 500 in New York. To help consumers make the most of the site, Mr. Miller has posted up-to-the-minute details about rules governing the spending benefit, including a thorny law that was enacted this year as part of health care reform. It requires FSA holders to get doctors’ prescriptions for over-the-counter items like Tylenol for reimbursement, and it makes paying for these OTC products with a debit card a multi-step process.
Therein lies a key challenge confronting the seven-employee firm—government regulation that may discourage people from using FSAs. “It seems that government is slowly, or not so slowly, strangling [Mr. Miller’s] business,” said Ira Davidson, director of Pace University’s Small Business Development Center.
Adding insult to injury, the new health care law places a $2,500 cap on health care FSAs in 2013; currently, employers are allowed to set the maximum annual savings for workers. According to J.D. Piro, principal and national practice leader with Aon Hewitt’s Health & Benefits Legal Practice, the average FSA held $1,460 last year, and account holders are tapping them to the greatest extent possible. “People are tending to cash out these accounts” because of the recession, he said.
Since last November, FSAStore.com has tweaked its website at least a half-dozen times to help account holders navigate the complicated benefit. It has, for instance, added color-coded icons that distinguish between FSA-eligible items and FSA-eligible medications that require a prescription, as well as a feature that enables customers to purchase both prescription and nonprescription items in one transaction but to pay with different FSA-permissible cards. “We cater to the account holder, making it simpler to use these accounts,” said Mr. Miller.
To keep his technology on the cutting edge, Mr. Miller recruited Azar Gurbanov, a classmate from Columbia who co-founded a telecom company in his native Azerbaijan, as a business partner and the firm’s chief operating officer.
So far, the startup has benefited from revenue-sharing partnerships with FSA-compliance administration companies that promote FSAStore.com to their account holders. FSAStore.com is on track to generate seven-digit revenues this year from both selling products and carrying ads for services such as Lasik surgery on its site, said Mr. Miller. To keep growing, however, he faces a formidable challenge: Continuing to outrun government regulations.
New health care rules for FSAs are in effect since January 1, 2011 - Certain over-the-counter products require a prescription if you want them reimbursed by your Flexible Spending Account (also includes HSA, HRA, and MSA Accounts). It is important to note that these changes do not affect all products.
What Products do the Healthcare Changes Affect?
Visit our Dynamic Product List to find out more about what products remain fully eligible or which products require a prescription to be eligible under an FSA.
Want to See if a Specific Product is Still Fully Covered?Try our proprietary Eligibility Checker™ - type in any product to see whether it is covered under your FSA (HSA, HRA, or MSA) or will require a prescription to be covered. Click Here...