Healthcare FSA Warning: Average Lost Contribution was $300-$400 Per Person

It’s mid-December. Do you know where your Healthcare Flexible Spending Account (FSA) contribution are? If it’s still sitting in your FSA, your employer may be waiting to pocket it shortly (subject to possible carryover or grace period). Money.com analyzed government data and found some concerning stats on these “use-it-or-lose-it” accounts: Workers Lose $3 Billion a Year in FSA Contributions (and Employers Get to Keep It). Here are some highlights:

• About 40% of the private workforce has access to FSAs.
• 44% of workers with FSAs in 2019 forfeited money. On average, the amount lost totals $339 per person. In 2020, those numbers went up: 48% forfeited some amount, while the average amount was $408.
• In total, FSA holders forfeited an estimated total of $7.2 billion in 2019 and 2020.
• Legally, all those billions of forfeited dollars are allowed to be kept by the employer.

This is why I send out a year-end reminder every year with ideas on how to use up your FSA funds. Amazon even has a special FSA-eligible page where you can link up your FSA/HSA debit cards and everything is already filtered for your convenience.

The flip side: Your employer can’t claw back spent funds, even if you use your entire annual allowance early on in the year, and your employment ends mid-year. Let’s say you set aside the maximum $3,050 for 2023, and have corrective eye surgery in January, spend it all, and get reimbursed for the full $3,050. Even if you get fired in February and have only had about $250 in salary deferral contributions, you are not on the hook for anything further.

From this SHRM article (HR site for employers):

Generally, the uniform coverage rule does not allow employers to charge an employee for the balance of a health flexible spending account (FSA) if the employee leaves employment mid-year. The rule requires that the full amount elected by an employee for an FSA must be available for reimbursement at any time during the coverage period or plan year. Employers cannot limit the amount of reimbursement to the amount the employee has contributed thus far during the plan year. Additionally, employee contributions may not be accelerated based on the employee’s incurred claims and reimbursements.

This supposedly makes it “fair” that the employer keeps unused FSA funds, but I am willing to bet that the amount of unused contributions far outweighs the used-early-then-left-work funds.