What Is an FSA?
While typical group healthcare insurance can be very effective for many of your business’s employees, out-of-pocket medical expenses such as deductibles and co-payments, and coinsurance can still present serious financial challenges.
A Flexible Spending Account (FSA), also known as a Flexible Spending Arrangement, is an employer-sponsored pre-tax account for employees to put money aside specifically to pay for these out-of-pocket medical expenses. Similar to an HRA, the money typically doesn’t grow in the account, but it is an effective way of managing money for a specific purpose.
Benefits of FSAs
One of the largest benefits of FSAs is that the money put into them isn’t taxable. This is not only advantageous to employees as it reduces their taxable income but also to employers as it reduces their payroll taxes.
Another benefit of FSAs is that it enables individuals to budget and plan for anticipated healthcare and dependent care expenses effectively. With an FSA, participants can pay for medical necessities such as prescription medications, co-pays, and even deductibles.
Lastly, FSAs foster an environment where employees are encouraged to seek essential medical treatment, rather than avoiding it, which could exacerbate their health issues and potentially render them unable to work. Losing employees due to health issues can seriously impact a business, and if these issues occur at work, they can lead to a workers’ compensation claim which could negatively impact a business’ premiums.
FSA contributions can be made by both employees and employers and are available on the first day of the plan year. Funds in an FSA generally must be used within the plan year or they are forfeited. To counter this, some employers may provide a grace period or allow a limited amount of funds to rollover into the next year. It is important to note that employees typically cannot take FSAs with them if they leave their job, unlike an HSA which is employee-owned.
If you think an FSA might help your employees cover out-of-pocket medical expenses, request a free FSA quote below today, and an MSIG employee benefits specialist will walk you through your options!
Request a Flexible Spending Accounts (FSAs) Quote
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