As healthcare costs rise, Flexible Spending Accounts (FSAs) are increasingly being recognized for their money-saving benefits. With the funds expiring on December 31, 2022, now is the time to take advantage of these accounts. FSAs are often used to purchase medical supplies and equipment such as bandages, crutches, adult diapers, and hospital beds.

 

HOW FSAs WORK

Taking the time to understand how FSAs work and the potential savings they offer can help ensure that individuals and families have the healthcare they need without breaking the bank.

An FSA is an employer-sponsored benefit that allows workers to set aside pre-tax dollars to pay for qualified medical expenses. Using an FSA account can have a significant impact on tax liability, as consumers are not required to pay taxes on the money spent. According to the December 2020 ConnectYourCare publication “Flexible Spending Account Trends in 2020,” an estimated $30.7 billion was saved in FSAs in 2020, an 8.7% increase from 2019.

 

FSA FUNDS FOR MEDICAL SUPPLIES AND EQUIPMENT

Specifically, FSAs are an effective way to save money on medical supplies and equipment in 2022 and in the coming years. Indeed, medical supplies and equipment are among the most common purchases made with FSA funds, ranking as the third most common type of FSA spending.

According to the National Business Group on Health survey, the most common items purchased with FSA funds are doctor visits (42%), over-the-counter medications (38%), medical supplies and equipment (34%), and prescriptions (32%). In a similar survey conducted by the National Association of FSA Administrators, consumers were said to be most likely to use their FSA funds to purchase over-the-counter medications (61%), vision care products (35%), and medical supplies and equipment (35%).

More specifically, popular items include:

  • pain killers
  • acne treatment
  • heat therapy
  • sunscreen
  • blood pressure monitors
  • first aid kits
  • allergy relief

 

FSA RESTRICTIONS

As the deadline for FSA accounts approaches, consumers should be aware of certain restrictions when purchasing medical supplies and equipment with FSA funds. For example, while most products are eligible for FSA reimbursement, there are some items that are not covered. This includes items such as nonprescription vitamins, health supplements, and cosmetic products. Additionally, consumers should be aware that FSA funds can only be used to pay for medical expenses that occur after the funds were deposited into their accounts.

It is important to realize that these funds do expire, though. With more than $1 billion in FSA funds expiring this year, consumers should take advantage of their available funds and purchase the medical supplies and equipment they need before the deadline, which is this Saturday, December 31, 2022.

 

INCREASED CONTRIBUTION LIMITS

According to the IRS, the average contribution limit for FSAs is set to increase in 2023. This is due to the IRS adjusting the FSA contribution limits for inflation, as stated in their “Cost of Living Adjustments” from 2020-2023.

The following graph demonstrates the increases of contribution limits since 2015.

 

INCREASED SPEND

At the same time, the dollar amount of money that individuals and businesses are placing into FSAs is also increasing. According to data from the Internal Revenue Service (IRS) and the Bureau of Labor Statistics (BLS), the average amount of money placed into FSAs has increased every year since 2015. In 2022, the average amount of money placed into FSAs was estimated to be $2,400.

 

INCREASED POPULARITY

In recent years, more employers have been offering FSAs to their employees, recognizing the potential for tax savings and other benefits. Studies have shown that employers who offer FSAs to their employees often have more satisfied and productive workers.

A study conducted by the National Business Group on Health found that the percentage of employers offering FSAs increased from 52% in 2015 to 60% in 2019. This trend is expected to continue into 2023, with 66.3% of employers offering FSAs, making for an increase of 27% in less than a decade.

 

INCREASED HEALTHCARE COSTS

While they have always offered tax savings and other benefits for individuals and businesses, the increasing popularity of FSAs is likely due to the rising cost of health care. According to the Centers for Medicare and Medicaid Services, healthcare costs are expected to rise by an average of 5.4% in 2022. Fortunately, the maximum allowance for FSAs is going up as well, and the money saved by these accounts can be used to offset the higher costs.

 

CONCLUSION

With their tax-free benefits and ease of use, FSAs are an excellent way to save money while providing much-needed medical supplies and services. As the data indicates, flexible spending accounts are becoming increasingly popular, and the amount of money placed into these accounts is growing. By being aware of the restrictions and deadlines associated with their FSA accounts, consumers can make the most of their FSA funds before they expire.