Column 72

I guess I was right when I said most folks don't like the decision making process that comes with open enrollment. An Employee Benefit News article stated that people would rather watch a video of the "Life of Lyndsey Lohan" than go through open enrollment for their employers' benefit plans. 

We have talked about how to choose your health plan.  But what about that FSA?  If your employer offers a Flexible Spending Account, you need to choose IF you will participate and if so, how much you will contribute. Today we will talk about the unreimbursed medical expense portion of the plan.

How does this work? After you decide how much you will contribute, the amount is deducted from your paycheck before taxes are calculated (pre-tax).  This means that if you are in a 25% tax bracket you save 25 cents in taxes on every dollar you defer.  So if you contribute $100, your paycheck will likely decrease by only $75.

Yet, you have $100 in the account to spend on qualified expenses.  Those expenses include copays for doctor visits or Rx, glasses, orthodontia and other dental expenses.  Basically anything allowed by the IRS as a medical deduction is eligible to be reimbursed from your FSA.  (§ 213(d) medical expenses)

Depending on the administrator you will need to submit a receipt and claim form or it can be as simple as having a debit card for your FSA.  You may have noticed that your drug store receipts will often code expenses as eligible for FSA reimbursement. 

There is one important warning about the FSA.  There is a "use it or lose it" provision.  This means that if you do not make eligible purchases and submit your claims in time, you can lose the funds in the account. 

However, the law now allows plans to include a "carryover" of up to $500 per year, if the plan does not include a grace period.  A grace period is a period of up to two months and 15 days immediately following end of a plan year, during which a participant may use amounts remaining from the previous plan year to pay expenses incurred for certain qualified benefits during that two-month and-15-day period.

This is different from a run out period.  A "run-out period" is a period, of a plan year during which a participant may submit a claim for reimbursement of qualified expenses incurred during the prior year.   It is important to know the provisions of your plan.

So, first be conservative in the amount you set aside.  Especially your first year, use only those "sure things" that you are accustomed to having as an expense.  It might be helpful to look at last year's check book and or Explanations of Benefits from your insurance plans so you know how much you actually paid from your own pocket.  Or maybe you are going to have lasik surgery this year.  How much better to pay for that cost with pre-tax dollars?

Plans may allow up to $2500 of employee salary reduction for unreimbursed medical expenses.  It is important to note that while the funds are withheld from your paycheck each pay period, you may actually submit a claim for the entire amount as early as the first of the year. 

Let's say you are going to have that lasik eye surgery done in January.  You may do so and submit the claim right away and the claim will be paid.  The funds will be withdrawn for the rest of the year to reimburse the advance.

One additional caution.  Since the funds are also pre-FICA (Social Security Tax) this could reduce the amount of social security income one would collect later. 

Tidbits:

Insurers announced this week that the Drug Enforcement Administration has issued a new rule reclassifying combination medications that contain hydrocodone as Schedule II Controlled Substances. By law, Schedule II prescriptions are not permitted to be refilled.  Those using such medications will need to be prepared to have a new prescription written when needed.

Covered CA  says it is open for renewal business, but that is not necessarily the case.  In fact most of the renewals we have tried to process were given the infamous "000" error message.  Any call to Covered CA is met with the response that they are aware of it and they are working on it.  But the most recent "fix" created other errors, so it's likely going to be a while before they are fixed.  I hope this is not déjà vu all over again!