Flexible Savings Accounts

If you get health benefits through your employer, you may be familiar with a horrific thing called Flexible Savings Accounts.

The first thing you realize about Flexible Savings Accounts is that they are not at all flexible, they do not represent savings, and they are not accounts. It gets worse from there.

The idea of the FSA is that you should not pay taxes on earnings that you earmark toward out-of-pocket expenses for medical care. But since you cannot be trusted, the government decided that you have to GUESS at the beginning of the year how much you will spend. If you guess wrong, you lose the money. So sorry.

The following are the simple steps you need to perform to save money with a Flexible Spending Account:

1. Take a wild guess how much your family will spend out of pocket on medical care next year. Warning: Do not guess wrong or you will lose any extra money that you guessed over the actual amount.

2. Let you employer hold some of your paycheck aside, so you can possibly be reimbursed later.

3. Fax receipts and claim forms with all of the details of your medical expenses to a claims administrator. Warning: You must include all of the necessary information, or they will not give you back your own money (that they took in step 2 above). This includes date, provider, services provided, member name, amount, etc. Just imagine filling out a dozen rebate applications, and you will start to get the idea.

4. Wait and hope that your expenses are approved so they can give you back your money.

5. Any amount that you overestimated in step 1 above is donated to your employer at the end of the year. Any amount that you underestimated, tough luck because you can not change your election during the year.

6. Repeat the process, starting back at step 1 for next year.

Example: Suppose you set aside $200 in your FSA, you are in a 25% tax bracket, and by some miracle you guessed right and provided the paperwork to get all of your money reimbursed. Congratulations - you just saved a total of $50 on your taxes! (Try not to think about the fact that for all that time you spent you could have just gone out and mowed 10 lawns for $20 each.)