Flexible Spending Accounts Facts for Families with Children

saving on health expensesFlexible Spending Accounts (FSAs) are accounts specifically setup to allow workers to spend pre-tax dollars on health expenditures. FSAs are very common, and as of 2010 approximately 9 of every 10 employers offered an FSA option for their employees. Unless you are self-employed or unemployed, the odds are that you can use an FSA to help decrease the cost of your healthcare spending.

An FSA is commonly operated through an administrating company, which may or may not be the same administrator of other employee benefits. FSA dollars may be spent on eligible health expenses, on insurance premiums, or on eligible dependent care expenses. With most employers, sign-up for FSAs occur during the benefits open enrollment period, or during a "life change" window such as a marriage or the birth of a child.

Like Health Savings Accounts (HSAs), FSAs are intended solely for health expenses and are regulated. The process for saving and spending FSA dollars are dictated by federal policy, and in many cases your employer or administrator may have additional regulations or requirements.

Unlike HSAs, FSAs are offered employees regardless of which health plan they choose (an HSA is only available to employees who also choose a qualified High Deductible Health Plan). While HSAs build and grow from year-to-year like a 401k or IRA, FSAs have a "use it or lose it" provision. The dollars saved must be spent within the same benefit year.

For families, who often are heavy users of medical services and for whom healthcare expenses can change wildly from year-to-year, the following are a few points to keep in mind:

FSAs cover more than just the trip to the doctor's office. Think of FSAs as being very broad when it comes to health or medical expenses -- the odds are that something is covered by it if you are ever curious. Prescriptions, medical supplies, and even Tylenol are covered by an FSA (although Health Reform will limit some of the over-the-counter drugs which can be claimed for reimbursement).

FSAs can cover child care -- a huge benefit for working families. Dependent care expenses can be run through your FSA, essentially giving your family a 30-40% discount on the cost of the care. The major stipulation -- the dependent care must enable both parents (or in a single-parent family, the parent) to work. If the purpose of child care is not to allow for parents to work, then it probably isn't going to be covered.

FSAs cover some surprising things. If parents are working, the cost of summer camp essentially is treated like a dependent care expense and can be covered. Additionally, if a child has allergies requiring renovations on your home (removal of mold or installation of filtration systems), those expenses may qualify.

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