Insured Through Work? Save Money on Health Costs
Your employer may offer one or more types of health savings plans to help you pay for your out-of-pocket medical bills and prescription drugs. These allow you to set aside money tax-free to spend on out-of-pocket medical costs.
Flexible Spending Account (FSA)
This includes deductibles, copays, and coinsurance, as well as dental and vision care. In many plans, you can use it for over-the-counter medicines, but only if your doctor writes a prescription for them.
Requirements: Your employer has to offer FSAs. If you're self-employed, you're not eligible.
How it works: You decide how much money you want to save for medical costs when you enroll for insurance during open enrollment. That amount is divided among all your paychecks. So on each paycheck stub, you'll see an automatic deduction for your FSA. Your employer can also contribute money into this account for you.
Amount you can save a year: Up to $2,500 in 2015. Each year, the government may adjust the maximum amount you’re allowed to save.
How it helps save money: The money you deposit into your FSA comes out of your paycheck before any taxes have been taken out. So your FSA is tax-free. You can also make withdrawals without paying taxes as long as you spend the money on qualified medical expenses -- health care or products on an IRS-approved list.
Another way it helps: With an FSA, you can spend money that you've committed to the account before you've saved it. For instance, if you decide at the start of the benefit year to put $2,500 in your FSA, and you have a $1,000 expense in January, you can still use your FSA to pay, even though you would have only paid one month into the account.
Warnings: You must use most of the money you commit to the FSA or you'll lose it. Sometimes employers offer a grace period of a few months to give employees extra time to spend the money. Also, last year the U.S. Treasury Department and IRS allowed employers to let workers carry over up to $500 of unused FSA funds to the next year. Employers can offer you either a grace period or the carryover option, but not both. Also, they are not required to offer either.
To protect yourself from losing any money:
- 1st: You need to carefully estimate how much you'll spend for health care. (You may hear this called your out-of-pocket medical costs.) That way, you're only saving as much as you think you'll use.
- 2nd: You need to stay on top of the paperwork to cover or get reimbursed for each expense. Payments from your FSA aren't automatic. You might find it helpful to find out what the last date is that you can turn in receipts and create a reminder for yourself.