Flexible Spending Arrangement (FSA) Defined
Author: admin22 Nov
A flexible spending arrangement (FSA), or Flexible Spending Account, as they are commonly called, is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States. Flexible spending accounts allow an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee’s pay into an FSA is not subject to payroll taxes, resulting in a substantial payroll tax savings.
The most common FSA, the medical expense FSA (also known as medical FSA or health FSA), is similar to a health savings account (HSA) or a health reimbursement account (HRA). However, while HSA insurance plans and HRAs are almost exclusively used as components of a consumer driven health care plan, medical FSAs are commonly offered with more traditional health plans as well. An FSA may be utilized by paper claims or an FSA debit card also known as a Flexcard.
According to Celent, as of May 2006, there were approximately 6 million debit cards in the market tied to an FSA account, representing 25% of the FSA participating community. The outlook for FSA cards in the near future is optimistic. FSA cards will increase FSA adoption rates. The average card participation rate was around 20% as of May 2006. By 2010, it is projected this rate will increase to 85%.
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2 Responses for "Flexible Spending Arrangement (FSA) Defined"
Fair warning to all you folks with Flex Spending accounts. If you are terminated from employment, you can not spend any flex money for anything that was dated on your termination date or after! So, you pretty much loose that money! It Sucks! I guess I’m thankful it is the beginning of the year and not toward the end.
Another fair warning to people considering an FSA: it’s a lot of paper work and time for very minimal savings. The card gets shut off nearly every time it’s used until you send in proof that the charge was for a medical expense. For example, my card was shut off after use at a Walgreens pharmacy, after use at the doctor’s office for a copay, and after use for a $996.52 hospital bill. For proof, they need more than just a simple receipt. It has to be itemized. So, the bill stub from the hospital won’t count as proof that the bill was for medical expenses and the fact that it’s a hospital doesn’t count either. It’s quite the ringer they put you through, and in my opinion, the FSA is not worth the “savings.”
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