Rising Healthcare Costs
Washington state employees are increasingly bearing the burden of healthcare costs. Uniform Medical Plan’s monthly premium for the family plan increased in 2012 by 35% to $236 a month, and this is the Public Employees Benefits Board’s (PEBB) most popular plan. More changes can be expected as the legislature and governor attempt to balance the budget. What tools are there to offset these rising costs?

An Overlooked Benefit
Using a healthcare Flexible Spending Account (FSA) typically saves individuals up to $400 a year. Money is taken out of one’s paycheck pre-tax and the money can be used for medical expenses such as co-pays, co-insurance, and medical supplies. In 2011 only 13% of Washington Healthcare Authority (PEBB) insured employees participated in FSAs, well below the national average of 20%. So why don’t more people take advantage of this opportunity to save money?

Understand What It Takes
It takes organization, time and patience to manage an FSA. The process of seeking reimbursement for medical expenses can be rather cumbersome and this keeps many people away. To successfully manage an FSA account you need to:

• Organize Paperwork: keep copies of your Explanations of Benefits (EOBs), medical bills, receipts, etc.
• File Claims: fill out forms and submit copies of the paperwork via fax, US Mail, or online to the FSA administrator.
• Spend Wisely: understand eligible expenses and accurately estimate your annual out-of-pocket medical expenses to avoid the “use-it-or-lose-it” rule (i.e., any unspent money is forfeited at the end of the year).

Tips For FSA Participants
Understanding the rules is key to managing an FSA. Here are a few tips to keep in mind:

• PEBB gives a grace period until March 15 of the following year to spend the money.
• The full amount that you set aside for an FSA is available to be spent on the first day of the year, even it hasn’t been deducted from your paycheck yet.
• There are a long list of eligible medical expenses. Get familiar with them so you never lose money (see pebb.hca.wa.gov)
• The FSA Debit Card lets you withdraw money directly from the FSA account, but using it may require you to submit proof of the medical expense (e.g., a receipt).

In the current fiscal environment, if you don’t use Flexible Spending you are leaving money on the table. If you can manage the paperwork, there’s no reason to stay out of the game.

(This article was originally published in FTE News Magazine’s January Issue.)

Komo 4 bumped into us the morning of Demo Day as we were practicing by the elevators at the TechStars office.

See the full story and pitch practice on Komo 4.

It’s tough going to find great websites related Flexible Spending Accounts (FSAs) and search rankings don’t reflect quality content. This list will be shorter than 10 and highlight some findings.

Top Google Search Result For “Flexible Spending”
FSAFEDS ranks number one using google search. They are a Third Party Administrator (TPA) that manages Flexible Spending for part or possibly all of the Federal Government. The site is not pleasing to the eye, but I suspect it ranks high because there are many government sites that link to it. Their Eligible Expenses Juke Box is a complete list of expenses eligible for Health Care Flexible Spending.

Wikipedia
Wikipedia provides detailed information on the subject of Flexible Spending Accounts (FSAs). The article describes the different types of FSAs such as Medical Expense, Dependent Care and other odd ones. It reads like an academic text book. Google ranks it number two while Bing has it in the top spot.

Best in Show: Colonoscopy As Analogy for Flexible Spending
If you’re looking for an amusing/sad story about Flexible Spending you should read the article by Uwe E. Reinhardt in the New York Times, The Trouble with (In)flexible Spending Accounts. He outlines how they work (or don’t work) and the adventure he and his wife both signed up for when they each got a colonoscopy in order to spend their Flexible Spending dollars. Use-It-or-Lose-It at its finest.

Employee Benefit Research Institute (EBRI) Fact Sheet
EBRI does research on benefits in general and also to provides training courses for Third Party Administrators (TPAs) that manage your Flexible Spending accounts. The Fact Sheet is a quick overview of how Flexible Spending works. TPAs look to them as the authority on Flexible Spending since they interpret the IRS regulations in their voluminous text books.

The IRS
The IRS is in charge of the regulations related to Flexible Spending so these links are important because they are THE RULES:

• Publication 969 (2010) Health Savings Accounts and Other Tax-Favored Plans. An overview of Flexible Spending Arrangements (this is their official term for Flexible Spending Accounts) and similar accounts. It’s also available in pdf format.
• IRS Issues Guidance Explaining 2011 Changes to Flexible Spending Arrangements . This outlines the impact of the The Affordable Care Act (Obama care) on FSAs, it caused an uproar by requiring a prescription to get reimbursed for Over The Counter (OTC) medicine.
• Publication 502 (2010), Medical and Dental Expenses This document outlines which expenses are eligible for Flexible Spending reimbursement. The Jukebox mentioned above and even the list that EBRI sells is most likely using Pub 502 as its source. Here’s the pdf.

This list is incomplete, but these are the materials I’ve come across most often when searching for THE authority on Flexible Spending. Please let me know if I missed any hidden gems. In the meantime we’ll be surfacing and creating content here at FlexMinder.com. You can also Sign up for our Beta to be the first to experience a better way to manage your Flexible Spending.

Health care Flexible Spending Accounts (FSA), aside from the lengthy tongue-twisting name, should be very cool. The premise is simple: I can lower my taxes by taking money out of my paycheck and spending it on my family’s medical expenses. The “simple” process works something like this.

Step 1: Setting It Up

The Process: Guess-timating

• Calculate how much money I expect to spend on medical expenses for the next year
• During annual benefits enrollment at my employer, enroll in a health care FSA.
• Set up auto deposit so that reimbursements go straight to my checking account.

The Problem: Fuzzy Math
Fear of losing money at the end of the year is the first major hurdle to using FSAs. FSAs have a rule fondly known as “Use it or lose it.” If you don’t spend all the money by the end of the year, you forfeit the remaining amount. Well, I don’t have a crystal ball to predict how sick my wife and kids are planning to be in the next year. Last year I allocated $1,500 for my FSA account. As it turned out, last year was a very sick year for our family and I greatly underestimated our expenses. There were stretches when we visited the doctor on a weekly basis for ear infections, coughing, and pink eye to name a few. These expenses combined with an unexpected ear tube surgery put us over the top.

The process of estimating expenses is clearly not simple, and it also presents a strange conundrum:

• If we’re sicker we spend more money, save more money in taxes and we’re actually sick, which is not fun.
• If we’re not sick, then we can’t take advantage of a sweet tax deduction or we have to scramble at the end of the year to spend all the money.

I can understand why people stay away from FSAs.

Step 2: Submitting a Claim

The Process: Manual Labor

1. Go to the doctor
2. Wait for the Explanation of Benefits (EOB) from my health insurance plan that says how much I owe (aka Patient Responsibility) for the doctor visit
3. Scan (yes, manually!) the Explanation of Benefits into a PDF file
4. Login to the Flex Administrator (aka Third Party Administrator) website
5. Fill out the health care FSA claim form, upload the PDF file from step 3
6. Submit the form
7. Wait for approval from the Flex Administrator.
8. Receive reimbursement into my checking account.
9. REPEAT previous steps for each medical event or batch them up and submit once a month.

The Problem: Hassle
Not so simple, is it? Surely there could be an easier way to get back the cash and reap the tax benefits. Last year, as I said, was a particularly illness-filled year for our family. As a result, we had 40+ Explanations of Benefits (EOBs) that needed to be scanned and submitted to the Flex Administrator. Not fun.

Are FSAs Worth It?

$1,500 is my standard health care FSA allocation. My expected tax savings is roughly $375 (25% of $1,500). To get that benefit I had to scan many Explanations of Benefits, fill out multiple FSA claim forms and spend time. Is Flex Spending worth it? It seems like a good idea, but the time and hassle to estimate expenses, prep the paperwork and submit the forms is actually not worth it for me. But I, and many others, sign up for Flex Spending Accounts because we don’t want to pass up a good deal. Most people don’t think about the true Return on Investment (ROI) for participating in FSAs. For me it wasn’t really worth it. If the process were easier, where everything was taken care of for me, it would absolutely be worth my time.

It has already been an incredible learning experience, and has opened up more doors for us than we would have thought. Really looking forward to “the most productive 3 months of our careers”! Exciting times ahead!

Onward and upward!