Flexible Spending Accounts

When people talked about their flexible spending account (FSA), I always wondered if it was right for me. But I didn’t want to take the time to investigate and I really didn’t want to bother with another government document.

I finally decided that I needed to look into it. After all, I might be missing something that I could be using with my group health insurance plan. (A FSA also works with a private health insurance plan offered by an employer.)

I found that the government sets up FSAs. It’s designed to help people set aside money for their deductibles, co-payments, co-insurance, and other expenses that relate to your health care (even dental), but are not covered by your health insurance coverage.

The government allows you to set up an account much like your checking account. You then make deposits directly from your paycheck, before taxes, into this account. It’s just like the the other pre-tax withholdings on your paycheck, i.e. FICA, Medicare, etc. Doing so gives you the advantage of not paying taxes on your health care and depending on how much you set aside, that advantage can be significant.

The tricky part is you have to set up how much you are going put in this account before the coverage period (usually a year) starts. It is important to remember that the money must be spent only on the area the government has allowed, which is your health care. Therefore, you will need to look at your health needs and figure how much you think you might be spending for the year on prescriptions, doctor, and hospital visits.

An FSA may be a good way to go if low cost health insurance is your goal then. The only problem I found with this program—and it’s a big one— is the government got greedy. The program requires that if you do not use all of the money that you’ve put away for the year (or coverage period) in this account, the government keeps the unused part.

I just love how the government can ruin a good program.