Changes to Flexible Spending Accounts

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I’ve been meaning to write about the changes to Flexible Spending Accounts on January 1, 2011. FSAs seem confusing and many people don’t how to use them to their advantage. Here is a rudimentary definition from Wikipedia.

An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee’s pay into an FSA is not subject to payroll taxes, resulting in a substantial payroll tax savings.

The most common type of FSA is used to pay for medical expenses not paid for by insurance; this usually means deductibles, copayments, and coinsurance for the employee’s health plan, but may also include expenses not covered by the health plan, such as dental and vision expenses and over-the-counter drugs including a first aid kit. A medical FSA cannot pay for health insurance premiums, cosmetic items, cosmetic surgery, controlled substances (in violation of federal law), or items that improve “general health”. All items must be intended to treat or prevent a specific medical condition; this can be as significant as diabetes or pregnancy, or as trivial as skin cuts.

There are HR/benefit geeks who are ready to scream at me about this definition, so if you have a better one, please leave it in the comments.

Many people want to participate in company-sponsored FSA programs but feel like it might not be a ‘good deal’. It is an awesome program — but I don’t miss working as a Human Resources generalist during open enrollment and trying to explain the program and the process. I remember when benefits were outsourced at my company and I could say, “Call Fidelity and ask them to explain it to you.”

That was awesome. So liberating.

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Benefit programs are important to some job seekers — sometimes more so than cash compensation. If you accept a job with basic health insurance and no dental or vision coverage and the HR department tries to sell you on the benefits of FSA accounts, you need to know about federally mandated changes to the program.

I recommend a story on NPR to help you understand flexible spending accounts and some of the potential changes to the program. You won’t be able to use your flexible spending accounts in 2011 to pay for braces, glasses, saline solution, and OTC drugs. This will impact many Americans, like me, who participate solely in FSA programs to cover these costs.

Get educated, get up-to-speed on the changes, and please leave a comment if you have any insight into the changes in flexible spending accounts. We would also love to know more about the changes and where we can find more information on how this impacts us as HR professionals, job seekers, and workers.

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