4 Ways Healthcare Reform Will Affect Your FSA

by Manisha Thakor  

'Tis the season... for open enrollment.

Open enrollment is the annual window where you can sign up for valuable employee benefits such as a Flexible Spending Account ("FSA"). If you work for an employer offering this benefit, trust me.  You want to keep reading.  As a self-employed person not eligible for this benefit right now - I'm here to tell you an FSA is nothing to sneeze at.  Back when I was in corporate America I didn't appreciate FSAs enough - andwant to make sure you don't make that same mistake.

FSAs are a great way to plump up YOUR bottom line by enabling you to pay for necessary out-of-pocket medical expenses with pre-tax dollars. As a result, when you sign up for an FSA, you can save up to 40 percent on expenditures that you are going to make anyway. This year, healthcare reform has brought about some changes to FSAs.  To help current and prospective FSA users prepare for open enrollment, I've teamed up with Wage Works on a "Save Smart, Spend Healthy Campaign" to spread the word about what you need to know to make the best choices for you and your family. 

Here are four key differences from last year that you should know about when planning how much to contribute to your FSA account:

1. OTC Medicines Are Still Covered... But You Will Need A Prescription. When there is change, there is often confusion. A number of news stories have inaccurately reported that the IRS is no longer allowing over-the-counter (OTC) medications to be paid for with FSA funds. Thankfully, this is incorrect. The truth is that starting January 1, 2011 OTC medications (excluding insulin) will require a doctor's prescription in order to be paid for with FSA funds. Note: the key word here is "medicines." Other non-medicinal OTC items such as band-aids, crutches and diagnostic kits can still be paid for with FSA dollars prescription-free. The easiest way to prepare for the new rule around OTC medications is simply to have a frank dialogue with your doctor at your next annual exam and get the necessary paperwork (specifically, a prescription) in advance for things like allergy medicine or pain relief capsules.

2. Contribution Caps Are Coming... So Plan Today For Elective Procedures. Starting in 2013, annual contributions to FSA accounts will be capped at $2,500. (Right now contribution caps are set by individual employers, and tend to average around $5,000). If you've been contemplating an elective procedure for you or a qualified family member - such as LASIK or braces - 2011 and 2012 are the last two years in which to set aside and use extra funds in your FSA. Remember, a payment made with FSA dollars is akin to getting a discount of up to 40 percent off since you are paying with pre-tax dollars. So it's really worth it to make an estimate of your FSA eligible expenses for the coming year and sign up to contribute that amount into your account.

3. Adult Children Get A Helping Hand... Under Certain Circumstances. Thanks to healthcare reform your adult children can stay on your healthcare policy up to age 26 - as long as they are not offered coverage by their employer. Now is a great time to check in with your entire family and see who might need coverage and/or whether any of your adult children qualify as dependents. Note: some firms will allow mid-year FSA contributions to reflect the addition of adult children so check with your HR department about their policies on qualifying events.

4. "Free" Preventative Care... Means Some Costs Will Go Away. Last but not least, routine screening for blood pressure, diabetes and cholesterol may no longer require a co-pay. Other cancer screenings like mammograms and colonoscopies as well a pre-natal care visits, vaccinations, and routine infant and childcare checkups may also be provided as part of your baseline insurance - thus requiring no additional out-of-pocket cost. If you had previously used your FSA to pay for these expenses, you can pare back here.

Ultimately, spending a little bit of time understanding how healthcare reform may change the amount you choose to contribute to your FSA for 2011 is an investment that you won't regret.


[Want more financial love? You can follow Women's Financial Literacy Initiative founder, Manisha Thakor, on Twitter at @ManishaThakor, sign up to get her email updates delivered right to your inbox here.]

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Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is MoneyZen.com.