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Understanding Flex Spending and Flex Savings Accounts

Flex Spending Accounts

Flex Spending AccountsA Flex Spending Account, or FSA is a program that helps consumers to cover all medical expenses from Band-Aids to co-pays, from iodine to co-insurance. These Flex Spending Accounts are easily confused with Health Savings Accounts (HSA) because of the similarity of their acronyms and because both are add-ons to basic policies. The basic Flex Spending Account offers consumers a number of advantages, but it also has its disadvantages.

Benefits of a Flex Spending Account

The introduction of Flex Spending Accounts marked a new era in financing health care. The dollar amount of the account is decided before its term begins, and the policy holder has the full amount available from the beginning of the qualified period, repaying the amount, usually through an automatic payroll deduction, over the course of a year.

One huge advantage of a Flex Spending Account is that the whole allotted amount is available from the very first day that the program is in effect. A customer who chooses to allot $1500 to an FSA for the year has it available at once. If the program begins on January 1, the insured has access to the whole $1500 on New Year’s Day. The customer then pays back the full amount over the course of the year.

Another good thing about Flex Spending Accounts is the wide range of uses to which the money can be put. Some insurance companies allow policyholders to pay co-payments with funds from the FSA and to purchase necessary health care and medical items from a store. Things like Band-Aids, over-the-counter medications and ace bandages may all be purchased using money from a Flex Spending Account. On a store receipt, any health care items that can be purchased using FSA funds will be marked with an ‘F” to one side.

A final benefit of using a Flex Savings Account is that it is funded with pre-tax dollars. This actually increases the policyholder’s take-home pay, since funds deposited in the account are not taxed and neither are withdrawals as long as they go to pay for qualifying items. Another tax considerations is the effect on tax bracket; a taxpayer who is on the borderline between two brackets can put enough untaxed money into an FSA to lower taxable income into the lower bracket.

Drawbacks of Flex Savings Accounts

Flex Saving AccountsNo program is perfect, and along with their good points FSAs have a number of not-so-good ones. Its major negative point is its “use it or lose it” nature. The program is set up to offer each participant the ability to use the entire allotted amount during the year, but any money  that is not used is recouped by the Flex Savings Account. The program does allow policyholders to use the money up until March of the succeeding year before the money is irrevocably lost.

In most cases a Flex Spending account is accessed through a card similar to other debit or credit cards but accessing only the funds in the FSA. Patients can use the card at clinics or doctors’ offices to cover the amount of a co-pay or at stores to pay for medical equipment and prescription drugs.

The other disadvantage to an FSA is that it requires attention to detail and meticulous record keeping, since the company can, at any time, ask for the receipts for purchases it considers questionable, and if the receipts are not provided, the policyholder must repay the amount to the FSA.

The overall impact of a Flex Spending Account is quite positive since it provides a means to keep individuals and families in good health without too much of a drain on family finances. It also gives families and even single people a convenient way to cover the costs of minor medical expenses in spite of its use-or-lose nature.