Important FSA details, and how Alight improves reimbursement accounts for your organization
As an employer, you know your team is always looking for ways to manage healthcare costs more effectively. That’s how a Flexible Spending Account (FSA) can help. But FSAs can be confusing. Terms like “eligible expenses,” “contribution limits,” and “use-it-or-lose-it” rules aren’t always clear, and that can lead to missed opportunities. Your goal should be to make sure every employee not only has access to this valuable benefit but also understands how to use it confidently. When your people know how FSAs work, they’re more likely to take full advantage and that means better financial wellness and peace of mind.
A Flexible Spending Account is an employer-sponsored benefit that allows employees to contribute a portion of their paycheck to cover out-of-pocket medical expenses. The employee’s money goes further, because expenses are paid with pre-tax dollars.
FSAs are designed to cover a wide range of medical expenses, such as doctor visits, prescriptions, and medical devices. Additionally, FSAs may also be established to cover dependent care expenses related to care for children under the age of 13 or care for a disabled dependent.
Each year, during your organization’s open enrollment period, employees can elect to contribute a specific total amount to their FSA. This amount is then divided evenly across pay periods and deducted from their paychecks. As employees incur eligible medical expenses throughout the year, they can submit claims for reimbursement from the FSA.
FSA contributions and benefits
The maximum contribution limit for healthcare FSAs is determined by the IRS, and it typically adjusts annually for inflation. This will help your people get the most from your company’s FSA without going over the allowed amount.
Use it or lose it — FSAs do not roll over
One of the critical aspects of an FSA is the "use-it-or-lose-it" rule. Any funds remaining in the FSA at the end of the plan year are forfeited, so accurately estimating medical expenses helps employees make the most of their accounts.
Some employers offer a grace period of up to two-and-a-half months or allow you to carry over a limited amount of unused funds to the next year, so be sure and communicate your FSA rules clearly to your people.
What expenses do FSAs cover?
FSAs cover a broad range of medical expenses, including copays, deductibles, prescription medications and certain over-the-counter items. This versatility allows your people to use FSA funds for various healthcare needs, making it a flexible financial tool.
FSAs encourage proactive planning for healthcare expenses, helping employees set aside funds specifically for medical needs. This budgeting aspect provides peace of mind, so employees know they have resources dedicated to managing healthcare costs.
Clear and consistent employee communication is key when it comes to FSAs. Effective employee communication is essential for helping your team understand how FSAs work. By clearly explaining the rules, such as contribution limits and what expenses are covered, you empower your people to use their benefits confidently and avoid costly mistakes. FSAs can be used to cover a variety of eligible medical expenses, including:
- Doctor's visits and copays
- Prescription medications
- Medical devices and equipment
- Dental and vision care
- Over-the-counter medications (with a prescription)
- Chiropractic care
Reimbursement Accounts
Your people can save and feel secure with strategic cost-saving reimbursement accounts from Alight.
Always encourage your employees to review their FSA plan documents or contact the plan administrator to confirm the eligibility of specific expenses.
Some employers provide an FSA debit card, allowing direct payment from the account and bypassing the reimbursement process. If the provider does not accept an FSA card, employees need to submit a claim to your FSA administrator, typically accompanied by receipts. Regardless of how FSA funds are used, encourage your people to keep track of all documentation in case there are any questions regarding coverage.
Comparing FSAs to HSAs
When choosing the right health benefit, it’s important to understand how a Flexible Spending Account (FSA) compares to other options like Health Savings Accounts (HSAs). Each account type offers unique advantages, but they also come with different rules around eligibility, contributions and usage.
FSA vs. HSA: key differences
- Eligibility: FSAs are available to employees through their employer, regardless of the type of health plan coverage. HSAs, however, are only available to employees enrolled in a high-deductible health plan.
- Ownership: FSA funds are owned by the employer and may be forfeited if not used by the end of the plan year. HSA funds belong to the employee and roll over year to year, even if they change jobs.
- Tax Benefits: Both accounts offer tax advantages, but HSAs provide triple tax savings. Contributions are tax-deductible, earnings grow tax-free and withdrawals for qualified medical expenses are also tax-free.
Strategic use of FSAs and HSAs
Employees can sometimes use an FSA alongside an HSA. In some plans, the FSA is limited-purpose, meaning it only covers dental and vision expenses. Pairing it with an HSA allows employees to maximize their tax savings while still covering a broad range of healthcare needs.
How Alight can help you manage your reimbursement solutions (including FSAs)
Alight’s reimbursement services (under the Smart-Choice Accounts® brand) are a turn-key solution that enhances employee satisfaction, supports financial wellness and provides employers with actionable insights through analytics dashboards.
These services support employees across a range of life expenses:
- Flexible Spending Accounts (FSAs) — including healthcare and dependent care
- Health Savings Accounts (HSAs)
- Health Reimbursement Accounts (HRAs)
- Commuter Benefits Plans
- Tuition Assistance
- Adoption Assistance
- Lifestyle Accounts — for wellness, fitness, and other personal needs
Navigating the ins and outs of FSAs can feel overwhelming, but it doesn’t have to be. Alight is here to simplify the process and create an outstanding experiences for employers and their people. With Alight, you get a trusted partner with deep experience in the details of FSAs and a variety of reimbursement solutions — making benefits easier for everyone.
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