Why every fed should consider a Flexible Spending Account

Less than 20% of active feds have a flexible spending account.

Less than 20% of active feds have a flexible spending account. Altayb/Getty Images

You can contribute pre-tax dollars for qualified health care expenses, among other things.

Record inflation is impacting all aspects of federal employees’ lives, including higher Federal Employees Health Benefits Program premiums. With an 8.7% average increase in enrollee share, the largest in the last 10 years, surefire ways to save money this Open Season should be universally embraced.

There is one way all active federal employees can save on some out-of-pocket costs: Flexible Spending Accounts. FSAs allow you to contribute pre-tax dollars for qualified health care expenses in the upcoming year, which saves you about 30% of the cost. 

Unfortunately, less than 20% of active feds have an FSA. If you don’t have one, to help you with your decision-making, we’ll go over how FSAs work, provide some budgeting tricks, cover the use-it-or-lose-it nature of contributed funds, and discuss roll-overs into a new plan year.

How Healthcare FSAs Work

A health care FSA is a type of savings account you can use to pay for qualified out-of-pocket health care expenses not covered by your health insurance plan such as co-pays. Your contributions to an FSA are not subject to payroll taxes when they are deducted from your paycheck, resulting in savings of about 30% on eligible expenses paid through the FSA, depending on your tax bracket. FSAs are only available to active federal employees; IRS rules prevent annuitants from enrolling in an FSA since an annuity is not considered salary.

In 2023 you can elect to start an FSA with as little as $100 a year or as much as $3,050 a year, a $200 increase from the 2022 maximum of $2,850.

Importantly, your total election amount is available on the first day of a new plan year. For example, if you elect to have $1,000 go into your FSA for 2023, on Jan. 1 the total election amount is available for any qualified health care expense you incur in 2023. For families where both spouses are active federal employees eligible for FEHB coverage, both individuals can enroll in an FSA, doubling the total amount to $6,100.

Besides traditional medical out-of-pocket expenses such as doctor copays, dental expenses, and vision care expenses, there are other types of health care-related expenses that qualify for reimbursement. Mileage to and from a medical provider is a qualified expense, as are many over-the-counter (OTC) medicines and drugs. The CARES Act, which passed in 2020 during the coronavirus pandemic, brought back over-the-counter items as FSA-eligible expenses without the need of a doctor’s prescription. 

FSAFeds manages the federal FSA program and their website includes an eligible expense look-up tool and FAQ.

How to Submit a Claim

There are two ways to receive reimbursement for an eligible expense: You can submit a claim through the FSAFeds app or website with an itemized receipt or use the paperless reimbursement option. For the latter, when your health care provider files a claim with your FEHB or FEDVIP plan, FSAFEDS will automatically proceed with reimbursement for your eligible out-of-pocket expense. Most of the major FEHB and FEDVIP carriers participate in paperless reimbursement, including Aetna, BCBS, GEHA, Humana, United, and many more.

Use It or Lose It

FSAs do have a use-it-or-lose-it mechanism built into their structure. If you contributed the full amount of $3,050 into your FSA and only used $1,000 in the plan year, you would have $2,050 left. There is a $610 limit, an increase of $40 from 2022, to how much of your unused balance can rollover into the next plan year, and you must re-enroll in an FSA to use it. In the example above, $610 would rollover into the next plan year and $1,440 would be lost.

Budgeting Advice

If you’ve never had an FSA before, you’ll want to carefully budget how much to contribute so you don’t lose unused funds, keeping in mind that you don’t have to be perfect as you can rollover up to $610 into the next plan year. 

To start, consider your predictable out-of-pocket health care expenses each year such as prescription drug copays, dental and vision expenses, and charges for known doctor visits. 

Next, consider your use of many OTC items such as allergy and sinus medicine, aspirin, bandages, and dozens more, which are qualified FSA health care expenses. 

Finally, add a little extra for unplanned expenses that seem to always come up during the year, such as urgent care or emergency room visits.

Limited Expense Health Care FSA

If you have a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA), IRS rules prevent you from contributing to both a health care FSA and an HSA in the same year. However, employees with an HSA can enroll in a Limited Expense Health Care FSA (LEX HCFSA), which can only be used for eligible dental and vision expenses. This is an excellent strategy for employees with an HSA as you’ll be able to use the LEX HCFSA for dental and vision expenses, preserving your HSA for other qualified medical expenses or keeping your HSA funds invested and growing over time.

The Final Word

With record inflation for just about everything these days, federal employees need to take full advantage of an FSA, which is a guaranteed way to save money. For 2023 both the contribution maximum and rollover amounts are increasing allowing you to contribute more money with some added flexibility. With paperless reimbursement available from most FEHB and FEDVIP plans, the hassle of keeping and sending in receipts for healthcare expenses is eliminated, making it even easier to benefit from an FSA.

Everyone has some predictable out-of-pocket health care expenses, especially considering OTC items such as aspirin and allergy medicine that no longer need a doctor’s prescription to be FSA eligible. Why not save 30% on those expenses?

The FSA Open Season has the same dates as the FEHB Open Season, Nov. 14 through Dec.12.

Kevin Moss is a senior editor with Consumers’ Checkbook. Checkbook’s 2023 Guide to Health Plans for Federal Employees will be available on the first day of Open Season, Nov. 14. Check here to see if your agency provides free access. The Guide is also available for purchase and Government Executive readers can save 20% by entering promo code GOVEXEC at checkout.

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