All About FSA
Being an adult is hard work, but it doesn’t always have to be. Investing in a healthcare savings account, such as an FSA plan or HSA plan, is a great way to save money on eyecare essentials. However, not everyone knows the ins and outs of FSA plans and how these healthcare savings tools can pay off in the long run. If you’ve just accepted your first job or you’re an adulthood pro but need to brush up on your healthcare savings lingo, we’ve got you covered.
• What is an FSA plan?
• What is an HSA plan?
• What are the best HSA plans?
• How does an FSA plan work?
• What are FSA limits?
• What can I use my FSA for?
• Should I get an FSA plan?
• Are eyeglasses covered by an FSA plan?
What Is an FSA Plan?Many companies offer various types of insurance plans to help employees and their families cover planned and unplanned medical expenses. An FSA plan, also known as a flexible spending account plan, is a healthcare benefit that works like a traditional savings account for qualified health expenses.
Your employer sets up the FSA and then you contribute a pre-determined amount of your paycheck into the account each pay period. One of the best perks of having an FSA plan is that the money from your paycheck transfers prior to federal income taxes, payroll taxes, and some state taxes being taken out. Each year, employees are allowed to set aside up to $2,750 in their FSA account to cover dental and healthcare costs such as prescriptions, copays, and medical equipment.
In addition to the traditional FSA, some employers offer a dependent-care FSA plan to help save money on daycare costs for children age 12 and younger. The dependent-care account has FSA limits that allow the family to contribute up to $5,000 each year to cover the cost of preschool tuition, camps, and other associated costs. Although many employees utilize the healthcare savings account to pay for child care, the account also covers care expenses for other qualifying dependents, including elderly family members, adult children, or a spouse that may be mentally or physically unable to care for themselves.
What Is an HSA Plan?Another type of healthcare account is an HSA plan, also known as a health savings account. This type of healthcare account is specifically for employees with a high-deductible health plan. These plans typically offer lower premiums, or the amount you pay to enroll in coverage, with high deductibles, or the amount of money you must pay before your insurance coverage financially contributes. High-deductible plans don’t begin paying for expenses until an individual has spent at least $1,400 or a family has spent $2,800, out of their own pocket. However, these are the lowest deductibles offered, and the maximums can be up to $6,750 for a single person and $13,500 for a family.
Many companies are offering high-deductible healthcare plans because of the cost savings, which makes investing in an HSA plan a smart choice if you’re currently enrolled in a high-deductible plan. Like an FSA plan, you can use the HSA plan to pay for deductible expenses, copays, and other costs that are predetermined by the HSA limitations.
Although the two plans are similar, there are several noticeable differences:
• An FSA plan has a “use it or lose it” mentality, where you’re only able to roll over up to $500 per year if you don’t spend the entirety of the money you’ve set aside
• An HSA allows for any unspent money to be rolled over
• The money you invest in an HSA plan is yours, regardless of where you work. If you change jobs or retire, you can keep your HSA money, whereas the FSA plan remains with your employer
What Are the Best HSA Plans?
Individuals are able to purchase their own HSA plans as long as they have a high-deductible health plan and meet the out-of-pocket limits set by the plans. Investopedia compares the seven best HSA plans by providers in 2020 to give customers a breakdown of the best parts of each plan, which one works best for particular situations, and the overall pros and cons.
How Does an FSA Plan Work?
Many people enjoy the flexibility of having an FSA healthcare plan because the funds you elect to contribute are deducted before taxes are taken out. Contributing to an FSA can drastically lower the amount you pay in taxes each year. Although employers may elect to contribute to your FSA, it is not required.
Each year during open enrollment, you meet with your employer to determine what type of healthcare plan best suits your family’s needs. During this time, you will estimate the amount of money you expect to spend on healthcare that year, discuss whether or not your employer will contribute any money to your healthcare savings account, and the amount of money you intend on depositing into the account throughout the year.
Once you deposit money into your FSA plan, you can pay for qualified healthcare items by using a predetermined card or paying for the items yourself and then submitting receipts to be reimbursed. Although you deposit money into the account with each paycheck, you can spend the money in the account before the full amount is paid in. The employer owns the account and is able to front the employee the money. If the employee needs to spend the full amount they plan to contribute during the first month, the employer makes that possible.
For employers, it’s important to understand that although they own the money and the account, they also own the liability. Let’s say an employee plans to put a total of $1,200 in their FSA by making $100 payments each month. However, because the employer fronts the money into the account, the employee has access from day one. If the employee decides to utilize all of the money during the first three months of the year and then resigns from their job the month after, the employer is responsible for paying out the rest of the money from the account. Unlike other accrued expenses, employers are not permitted to deduct the balance of the unpaid healthcare savings amount from the employee’s final paycheck.
The flipside to this scenario is that if the same employee contributes $1,200 over the course of the year but is only able to spend $500, the account would return the remaining $200 to the employer, assuming that $500 was permitted to be rolled over into the following year. Although both employees and employers benefit from the offer of different healthcare savings accounts, it’s essential to understand where the risk versus reward falls. Although you can save an average of 30 percent on eligible products and services, if you elect to contribute too much to a healthcare savings account, you could end up losing the money you would’ve saved.
What Are FSA Limits?
In the case of FSA and HSA plans, there is too much of a good thing. At least according to the IRS, which is where FSA limits come into play. Each year, the Internal Revenue Service (IRS) sets FSA limits for how much of their salary employees can set aside within their healthcare savings accounts. In 2018, the IRS set the FSA limit at $2,650. In 2019 and 2020, the IRS increased the amount by $50 each, to $2,700 and $2,750 respectively.
Employees who qualify for healthcare savings plans should be informed about the HSA and FSA limits of each plan so they can prepare accordingly. For an HSA, employees can contribute a maximum of $3,550 for individual coverage or $7,100 for a family. If you are age 55 or older, you are allowed to contribute an additional $1,000 to the plan.
Another important note to consider regarding FSA limits is that the amount that an employer contributes does not reduce the amount the employee can contribute. For example, in 2020, the FSA limits for employee contributions was $2,750. If your employer contributes $1,000, you are still able to contribute the maximum of $2,750 for a total of $3,750. However, remember that employers are not required to contribute anything to your healthcare savings accounts, which would mean that your FSA limits would remain at $2,750, or whatever the maximum set by the IRS is for that tax year.
What Can I Use My FSA for?
Although the majority of FSA plans don’t permit you to use the money to pay for your insurance premiums, you can use your plan to cover the cost of thousands of qualified medical expenses. These qualified medical expenses, also known as QMEs, include dental, medical, vision, and prescription expenses that you would normally pay for out of pocket. By contributing to a healthcare savings account, you can deduct nearly 30 percent to the amount you would be paying by using the pre-tax money from your FSA or HAS plan.
According to Health Equity, the following are examples of items that qualify as expenses you can use your healthcare savings plan to pay for. However, we always recommend verifying expenses with the Internal Revenue Service, as qualified expenses may change.
• Transportation to Alcoholics Anonymous meetings
• Cancer screenings
• Visiting an optometrist
• Safety glasses
• Physical therapy
• Throat lozenges
• Laser eye surgery
• Eye drops
• Eyeglasses and other equipment
• Hearing aids
• Eye examinations
Should I Get an FSA Plan?
Whether or not an FSA plan will be useful to you depends on several factors. Some experts advise that unless you have an ongoing condition that requires continuous healthcare payments, you may not get as much use out of an FSA account. FSA plans pay for out-of-pocket expenses, which are typically low for generally healthy people with decent healthcare benefits. In those situations, experts recommend placing the same money into other pre-tax accounts such as retirement savings.
Other experts, however, disagree. The majority of people have predictable, recurring medical expenses such as dental visits and eye exams. Regardless of how much you plan on spending on expenses, investing in a healthcare savings account makes your money go further.
The bottom line on whether or not you should invest in an FSA Plan or HSA Plan comes down to understanding the options from your employer and accurately estimating your upcoming expenses. Take time to read through your employer’s plan, the IRS guidelines, and what each restricts.
Are Eyeglasses Covered by an FSA Plan?
Eyeglasses, contact lenses, eye exams, and other eye related supplies are usually covered by FSA and HSA plans. However, there are certain stipulations that you must follow to ensure your account will cover your healthcare savings purchase.
The most common vision products that are eligible for purchase with a healthcare savings account are:
• Reading glasses. If you have trouble reading your favorite book, the newspaper, or seeing details on your phone screen, you may need a pair of readers. Thankfully, reading glasses are a qualified expense for your FSA account. Reading glasses include custom lenses, frames, accessories, and over-the-counter reading glasses you may purchase online or from a local drugstore.
• Prescription eyeglasses. In general, if you have a prescription from your eye care professional, it’s a qualifying item. Qualifying eyeglasses items include various size, shape, and style frames as well as several lens types. In terms of upgrades to your prescription eyeglasses, you can add a scratch-resistant coating as well as an anti-glare coating with your healthcare savings account. Specialty lenses are approved, so you can also purchase safety goggles for athletic purposes as well as prescription scuba gear with your FSA or HSA plans.
• Prescription sunglasses. If you have a prescription for sunglasses, the IRS considers them an approved expense. You can choose mirrored, photochromic, or polarized lenses, but you must have a doctor’s note or prescription.
• Contact lenses. Eyeglasses aren’t for everyone. The cost of contact lenses, eye drops, contact lens solution, and other accessories can add up quickly. Thankfully, all of these items are considered qualifying items for your healthcare savings accounts.
• Annual eye examinations. Whether or not you think your vision is perfect doesn’t matter when it comes to needing an annual eye exam. Regular check-ups can help catch eye diseases and other health issues that would otherwise go undiagnosed. Your healthcare savings accounts will pay for the cost of your regular eye exam, so there’s no reason for putting them off.
How to Spend Your FSA and HSA Plan Benefits
Many companies that sell eyeglasses and contact lenses accept payment through FSA or HSA plans. If you find a company that you want to purchase eyeglasses or contacts through, here are the steps you need to follow to place your order:
• Ensure you have a valid, updated prescription from your eye care provider. You should visit your eye doctor once each year for an annual eye exam to check the health of your eyes and to ensure you don’t need glasses or contacts. If you have a preference for glasses or contacts, be sure to speak with your eye doctor prior to your appointment to ensure you’re on the same page. If you experience issues with dry eyes or want to experiment with colored contact lenses, it’s also crucial to let your eye doctor know before they write your prescription. Once you have your prescription, you have several options for purchasing glasses or contacts with your FSA or HSA plans.
• For contacts, you can purchase your lenses directly through your eye doctor or try buying contacts online to save additional money. Many online contacts companies offer free shipping, a satisfaction guarantee, and discounts on your lenses. Shopping at these online retailers can be a fantastic way to ensure your FSA and HSA plans go even further.
• For glasses, the process is similar. To choose eyeglasses online, browse various styles that you like, including designer glasses, different frame styles, and the best styles for your face shape. Buying glasses online also offers additional cost savings compared to buying in-store. Some companies even offer the ability to see a virtual try-on of how the frames will look on your face before you purchase them. Once you’ve found your favorite frames, customize your glasses with lens treatments and additions. Lenses come in different levels ranging from basic plastic and polycarbonate to ultra-thin lenses with premium anti-glare coatings. You can also add coatings for tint, blue light protection, sun sensor, and polarization.
• Once you’ve chosen your glasses or contact lenses, paying for your items with your FSA or HSA plans is easier than you would think. If you have a pre-loaded credit or debit card from your account, purchase the items the same way you would with a traditional credit or debit card. The purchase will automatically be subtracted from your account total. If you have a reimbursement account, be sure to check with the company to ensure they provide an itemized invoice that you can submit to your FSA or HSA plan so that they can reimburse you.
When it comes to investing your money, it’s always smart to do your research ahead of time to ensure you’re making the most of your hard-earned paycheck. Speak with your employer, ask friends and family members, and do independent research before selecting a plan.