Figuring out how much to contribute to your FSA is a bit like deciding how much food to bring on a backpacking trip. Once you get out in the wilderness, you're stuck with the rations you've brought - if you packed too much, you may have to toss it along the way. If you packed too little, you'll have to end the trip early.
Because you can't change FSA contributions mid-year unless you have a qualifying event, like changes in marital or work status, it pays to contribute the right amount. Contribute too little and you may end up with some hefty out-of-pocket expenses.
Contribute too much and you'll be faced with a dilemma - roll over up to $500 to the next year or try to spend the remaining balance in the first two and a half months. Everyone has a magic number for how much they should contribute to their FSA. Here's one way to find yours.
Go through last year's expenses
The best way to decide how much to save for health care expenses is to look at how much you spent the previous year. Log on to your insurance account and see if you can find the total amount you paid, not including monthly premiums.
Include how much you spent for all medical expenses, such as glasses and contacts, prescriptions, counseling and therapy visits, medical devices, dental visits and more. Then, examine those expenses and determine how common they were. If your only visits to the doctor were because of ordinary problems like the flu or sinus infection, you can probably estimate this next year will be the same.
If you ran into a major health problem, you should evaluate if next year will be similar. Some issues, like diabetes or asthma, require more-frequent doctors' visits. Others, like appendicitis, happen once a lifetime.
If you had a costly medical emergency, consider the likelihood that it will occur again and whether or not to include that figure in your estimate.
Compare health insurance plans
Even if you're signing up for a similar health insurance policy, the deductibles, copays and coinsurance rates might change from year to year. Compare the figures to see if you'll be paying more and adjust your FSA contribution accordingly.
For example, if your health insurance copay is increasing from $40 a visit to $60, add up how many visits you made last year and multiply them by $20.
Think ahead about major procedures
Sometimes you know about major operations and procedures ahead of time, so you can plan ahead. If you know this is the year when you're going to get LASIK surgery or finally get your knees replaced, call the insurance company to get an estimate of those costs.
Most of the time you can get an accurate idea of the expenses you're facing. If the insurance company can only guess what your costs might be, go with the higher end of the estimate. This way, you'll be covered in case you end up paying more.
What if you picked the wrong number?
If you end up saving more than you needed, ask your HR rep about the company's rollover policy. Most will either let you roll over $500 or give you a grace period of 2.5 months to spend the remainder. If you saved too little, try upping your contributions next year to maximize your tax-free benefits.
Finding your FSA magic number is essentially, a guessing game. Don't be surprised if you estimate too much or too little the first time you do it. It's all about taking charge of your finances and making the most educated guess possible.
From FSA basics to the most specific account details, in our weekly Asked and Answered column, our team gets to the bottom of your most-pressing flex spending questions. It appears every Wednesday, exclusively on the FSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram, YouTube and Twitter.
Just a few short years ago, gene testing was seen as a brave new world for preventative medicine. When Angelina Jolie went public with her BRCA1 mutation diagnosis and subsequent double mastectomy in 2013, few people had heard of BRCA gene mutations. Many weren't even aware genetic testing could be used to inform medical decisions.
Since then, the DNA testing landscape has exploded. Companies like 23andMe, Color and Helix offer kits that can give you a clearer picture of your genetic health - specifically conditions and diseases to which you may be more susceptible.
But because the DNA testing industry is relatively new in the medical world, using your FSA or HSA to pay for a test isn't as straightforward as it would be to pay for most other medical expenses. Here's what you need to know.
Does your account cover DNA tests?
In general, you can get genetic testing from your doctor's office or from one of the many genetic testing services available, such as 23andMe. Few doctors recommend genetic testing unless you're starting a family or have a strong family history of a certain disease. In that case, they'll refer you to a lab for further bloodwork.
Since the advent of at-home DNA tests, more people have been eager to find out what conditions they're genetically at risk for, including Parkinson's, Alzheimer's, Celiac and more. Most of these tests only require a saliva sample, cost between $100 and $300, and provide results within a few weeks.
Getting reimbursed for these tests through your FSA or HSA isn't easy. These accounts only cover genetic testing when you have a Letter of Medical Necessity (LMN), which administrators require to prove that the DNA test is being used for medical reasons. Your doctor or other health care professional will need to write this letter to prove that the test is for the diagnosis, cure, mitigation, treatment, or prevention of disease.
The test might have a medical purpose as its primary goal, but a DNA test might also reveal non-medical information - such as ancestry or ethnicity - so it doesn't always have a medical use. If you order a DNA test that also provides information on your family's ethnic background, you might find it harder to get the expense approved.
If the user doesn't have a family history of a specific disease, it might be difficult to get the doctor to write a LMN for you.
If you're unsure as whether or not the DNA testing will be eligible, and what types of documentation may be required, be sure to check with your FSA administrator.
If I can't get an LMN, what's the next step?
A popular genetic test that's covered by HSAs and FSAs without an LMN is the BRACAnalysis test, which determines if the user has a mutation on the BRCA1 or BRCA2 gene. A pathogenic mutation on one of these two genes means the patient has a high chance of developing breast and ovarian cancer.
Upon testing positive, many women undergo preventative surgeries of their ovaries, fallopian tubes and breasts to lessen the cancer risk.
Because the BRACAnalysis test is shown to be medically necessary and only tests patients for a specific disease, it will typically be covered by your FSA or HSA without an LMN.
If you do test positive for a medically-relevant gene mutation, an appointment with a genetic counselor may be covered by your FSA or HSA. Follow-up appointments with your primary care doctor or specialist will also be covered.
For most Americans, healthcare comes through their employer, and prices for expenses -- like copays and doctor visits -- are largely determined by the available plans, before you even sign up.
But with the rising cost of healthcare in the U.S., skipping treatments or postponing doctors' appointments has become an unfortunate -- and unnecessary -- reality for some Americans.
Don't let these price increases affect your health when there are many ways to cut the costs of medical care! For this week's FSA Friday, we're going to explore some easy, money-saving tips to boost your finances.
1. Check prescription drug prices
We covered this in last week's column, but you may be spending more than you should for prescription drugs by not paying with cash. Pharmacy benefit managers (PBMs) may sometimes negotiate higher prices for co-pays than the actual cost of the drug, so you should always ask your pharmacist first if there's a difference between cash and insurance-covered prices.
2. Use free preventive care options
The Affordable Care Act mandated that insurance plans must offer a minimum standard of preventative services that are free of charge to the participant, as long as they stay within their insurance networks. Healthcare.gov has a full listing of these services, which includes vital screenings like colonoscopies, vaccinations, blood pressure testing, and more.
3. Enroll in an FSA/HSA
Maybe we're partial, but if you're offered an FSA or HSA option through your employer, this is one of the easiest ways to cut costs by reducing your taxable income. The money contributed to your account is exempt, so every purchase you make, whether it's sunscreen, co-pays or OTC medicines, is covered by tax-free money. That's way better than paying out of pocket!
4. Consider generic drug options
When you purchase name-brand medications, you're usually paying a premium for the name on the bottle. Over-the-counter (OTC) medications like pain relievers and antihistamines have identical generic versions that can offer real cost savings.
Another note -- be wary of pricey combo drugs. Instead of buying a less-effective combination cold and allergy medicine, check ingredient lists. It's often far cheaper (and effective) to buy a standard decongestant and a separate allergy medication. Of course, check with your doctor if you're unsure of how much you need of each active ingredient.
5. Track your health spending
This sounds like a no-brainer, but tracking spending is a major consideration if you have a deductible.
Let's say you anticipate having a medical procedure sometime over the next year. You can use this opportunity to make a huge dent in your deductible so that insurance can cover unexpected expenses later in the year.
Another option is to hold off on the procedure until later in the year, after you've met your deductible, when your insurance might possibly cover the whole cost. Both options make sense, as long as you track your costs so you can time your healthcare costs to match your insurance coverage.
Tax-free healthcare spending requires diligence to manage correctly. But that doesn't mean it needs to be difficult! Keeping clear records of how much of your pay goes toward insurance costs, doctor's visit deductibles, and costs of prescription medications, health supplies and over-the-counter products, can go a long way.
What's important is that you know how much your health spending impacts your overall budget. We'll help you can get ahead of your health spending with these organization tips.
Start with a budget
The easiest way to keep track of your healthcare spending is to set a monthly budget. Take your monthly income and subtract your major expenses such as housing, utilities and food, but don't forget to include your health spending. The key to a monthly budget is to think of it as a dashboard view of where your money is going.
One detail to remember with a monthly budget is setting a budget at the beginning of a month is really a projection on how your money will be spent. At the end of the month you should compare your projection to the actual spending in each category.
From month to month you will find trends on utilities rising and falling with the seasons, food and entertainment spending shifting around and even changes in your healthcare spending. A monthly budget will also allow you to see the impact of unforeseen events on your spending, such as a visit to an emergency clinic, or some unexpected guests coming into town.
You can keep a monthly budget on paper, or even through a spreadsheet template, but there is a wide range of free budgeting software apps that can be found with a quick web search. This personal budgeting software will be able to offer graphical charts and trackers to make it easy to see exactly how much of your spending is going toward healthcare.
Keep up with FSA-eligible spending
Another benefit of keeping a monthly budget that includes health spending is you can get more detailed and track your FSA-eligible spending by category.
Why is this important? FSA dollars are use-it-or-lose-it, so it is best to know how much you have available so that you spend those dollars the best way possible before your yearly deadline. And having a better understanding of your annual healthcare spending will also influence how much you can (and should) elect during your open enrollment.
To help you establish and set a budget (and to see how much you can save on your medical needs using FSA dollars), we have an FSA calculator that can help you estimate your health spending for the year so you can make informed decisions, and take maximum advantage of your flex spending dollars.
While each use case varies, we estimate that by using tax-free dollars, you can essentially save up to 30% on your eligible medical, pharmaceutical, dental and eye care costs. The only challenge is figuring out how much money to set aside.