Flexible spending accounts (FSAs) are great things for people like me. People who regularly take prescription meds. People who routinely see one or more doctors. People who are pursuing a regimen of physical or behavioral therapy.
FSAs are great because they force you to save. You fill out an agreement with your payroll department to have X dollars taken out of your paycheck each month. Like magic, they go into a special savings account. Before you can touch them or spend them. When you see a doctor or buy an Rx drug, you pay a small copay out of pocket. With an FSA, that copay doesn't just vanish into the ether. You can get it back, from your special savings account.
My FSA account saved the day this spring. I caught pneumonia in February, was in the hospital for three days, and was out of work for four full weeks. Four weeks with no pay. Then, I got a bill for more than $400 that I owed to the hospital. I had no money. I was eating tuna fish paid for with a credit card. What was I going to do? The normal FSA routine is for you to pay the bill, then get reimbursed for it from your special savings account. Could I get the FSA account controllers to give me the money before I paid the bill? Also, because I put $100 per month into my special savings account, and it was only March, I had less money in my account ($300) than I owed the hospital ($400). How could I cover that last $100?
In a fit of desperation, I ran to the IRS Web site. (IRS rules control how FSAs can be set up and used). To my amazement, I discovered that by showing the $400 bill to the account controllers, I could get $400 from the account. It didn't matter that I hadn't yet paid the bill. Phew.
It also didn't matter that at that point in the year, the money I had saved in my account was less than the amount of money I wanted to take out of it. I could effectively get a loan for $400 from my account that only held $300! According to IRS rules, if you and your payroll people have agreed to put X dollars in your account by year-end, you can get reimbursed for expenses up to X at any time. But make sure you get those X dollars contributed by year-end. You cannot, at year-end, have been reimbursed for more money than you put in your account.
Read more about flexible spending accounts in IRS Publication 969, at the Bureau of Labor Statistics Web site , and Cigna insurance company's FSA services page. (Cigna is just one of many companies that run health savings accounts.)
