Now that it’s well past midway of 2005, it’s a good time to check up on your healthcare Flexible Spending Accounts (FSAs), if you use them. If you do use them, you are probably aware that most FSAs make you forfeit any of the unused balance at the end of the year. We usually don’t have too many health-related expenses, so we only put in $500 this year. My wife ended up getting some dental work done, so it looks like we won’t have to worry about losing any of it. Nickel of FiveCentNickel writes how he hates the annoying “use-it-or-lose-it” aspect of these accounts in a recent post. This also reminded me, did you know that there is a flipside to this?
I got this example from talking with my HR person earlier this year. Say this December you decide to put in $3,000 in your Flexible Spending Account for the next year. If you are paid bi-weekly this ends up being $115 per paycheck. Say on January 2nd you get $3,000 laser eye surgery, and file a claim form. You’ll get your $3,000 back immediately (well, in a week or so), even though you’ve barely paid $115 into your FSA. Then, you quit! Do you have to pay back the balance of your $3,000 surgery? No! Of course, quitting your job just to get $3,000 of free healthcare can be stupid, but according to her it happens, and the company just has to counterbalance it with funds from unused FSA money.
Anyways, this in no way justifies the fact that if I expected to use $3,000 and was lucky enough only to need to spend $1,000, I lose $2,000 in pre-tax money. If anything, this shows how the system is flawed either way! I just thought it was interesting.