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 – and want 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.