The thought of rising health care costs makes me cringe every time I think about it. A recent report noted that employees can expect as much as a 12.4% increase in health care premiums paid through their employer next year. Just in the past decade, the amount an employee is paying for their health care has more than tripled according to the same article. I can add that in my own experience I have seen similar increases in my health care premiums for less and less coverage. I can’t even imagine what those without any employer sponsored medical insurance are going through.
There are a few options to help lessen the blow of these rising medical expenses, which include electing a Flexible Spending Account through your employer.
Sign Up for Flexible Spending Accounts
Employees who have the opportunity to enroll in work sponsored Flexible Spending Accounts (FSA) can save a significant amount of money each year on health care or dependent care related expenses. A flexible spending account allows an employee to be reimbursed for medical related expenses including prescription drug costs, office co-pays, emergency room visits, and much more. The FSA account for an employee is normally funded through salary deductions taken out by an employer and are voluntary benefits.
The true savings of one of these accounts is the tax benefits that are provided. There are no federal income taxes deducted from the contribution which is why these accounts have become very popular in recent years. Any withdrawals used to pay medical related expenses are usually tax free as long as they are covered expenses.
Types of Flexible Spending Accounts
There are a couple different types of flexible spending accounts that are usually available. Two of the more common options include medical expense accounts and the other is dependent care accounts. A medical FSA usually covers most health care related expenses like deductibles, co-payments, and even dental and vision care.
Dependent FSA plans can cover expenses related to the care of any dependents living in your household while you are at work. For example, these plans typically cover child care expenses for parents who work. Some of these plans may also cover elderly care for seniors or disabled dependents in which you are caring for.
It is important to ask your benefit representative at work any questions on the plans provided by your employer.
Estimating FSA Election
Unless you are a new employee joining a company, you will normally be asked to elect your health benefits through your employer during an annual enrollment period for the upcoming calendar year. If your employer offers an FSA benefit, then this is the time to make your elections. The only problem is that an FSA benefit is a specific dollar coverage amount which may be difficult to estimate for the upcoming year. Unfortunately, if you elect too many funds to the account and don’t use them, you end up losing that money.
It is important not to over estimate any FSA elections for the upcoming year so that any funds not used are not lost. I found that by looking at a past years medical related expenses, my wife and I can estimate what we think we will spend in the upcoming year. To play it safe, we typically only budget for office co-pays and prescriptions that we know we will spend. These estimates will probably not cover every single medical expense, but it is a way to ensure we are not wasting money either.
Final Thoughts
Opening up an FSA account through your employer is a great way to lower your overall medical costs if they provide this benefit. Most of these accounts can only be elected when you are either a new hire or during an annual enrollment period. If you missed out on this years enrollment period, make sure you take advantage of this benefit in the upcoming year by planning ahead and keeping track of what you are paying this year on medical expenses.
Do you elect FSA coverage through your employer? How do you estimated the coverage amount you plan to fund for future medical expenses?
Related posts:
- Medical Copay – What is it?
- How are you Handling Increases in Your Medical Premiums and Deductibles?
- Coinsurance Definition – Understanding Health Insurance Costs
- What is a Medical Deductible?
- Controlling Rising Health Care Costs
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I have a HSA account and love how much money it has saved me. Of course I am a pretty healthy person, so having this type of account really works for me. The irony was that when my health insurance was paid for by previous companies, I never even considered this option. I would definitely recommend checking on all your options.
@Jill – Great point. HSA’s are also great options provided by many employers. As health care costs continue to rise, I think a lot more employees will be signing up for these plans.
I also ended up with an HSA. One of the biggest differences is FSA accounts are use it or lose it. Where as an HSA can actually grow and earnings can be withdrawn after 59 1/2 like an IRA.
I haven’t really been able to build it up, but it has paid for the low monthly fee. I actually wish they would raise the contribution limit because when you factor in dental, eye care, and any sort of major medical, you quickly go through the current limit.
@ CD Rates Blog – That is a great point. The problem with an FSA is that you need to use the money up or it’s gone. In my own experience, it seems like many more companies offer FSA’s as opposed to HSA’s.
I’ve used an FSA for the last few years! I love it. I never have enough medical expenses to write them off on my taxes (and even then, it’s only expenses ABOVE 7.5% of your AGI), so an FSA gives me tax savings that I would never see otherwise!
One thing to note is that this is the last year that OTC drugs can be claimed against your FSA!
@Khaleef – I hear you on the tax write off. We are never close to the limit to claim them on our taxes, so using the FSA is the next best thing.
We’ve been using an FSA for years and always signup for the maximum amount to be deducted from my husband’s paycheck. With 6 people in the family we never have a problem using up all of the funds. We usually wait until November to see what is left over after doctor/dentist bills/prescriptions and then schedule our eye exams and get new eyeglasses and prescription sunglasses for all in need. This is something we probably wouldn’t be able to do every year if we hadn’t been saving the money in the FSA. So don’t forget about eyeglasses, if you find you have money leftover at the end of the year.
@bestmommy – Yeah, 6 family members can probably go through an FSA very quickly I can imagine. Great point about the eyeglasses.