I recently came to the realization that my vision sucks and I need to go see the Optometrist. I decided that if my eyes were bad enough such that I needed to wear contacts or eyeglasses all the time, that I would just skip that whole process and get laser vision correction. I've heard great things about it, however, it does cost about $4000. One of my friends knew well in advance that he was going to have the procedure done and planned for it by allocating the necessary funds into his Flexible Spending Account for Healthcare (FSA). So, I decided to investigate FSA's.
For those who are unfamiliar with FSA's, it's a system whereby you can contribute up to $5000/year from your salary (pre-tax) to pay for health care expenses. So if I decided that I needed $5000 for health care expenses, my employer would deduct $417/month (pre-tax) from my salary for the entire year and deposit the sum into the FSA. The good thing about FSA's is that the entire sum of $5000 is available on the first of the year, even though I hadn't actually contributed anything to it yet (remember, my employer will deduct $417/month for the whole calendar year). Funds from the FSA can be used to pay for authorized health care expenditures. Sounds perfect, right? Well, not exactly, the reason I say it's not exactly "flexible" is that you must decide the amount you want to allocate in advance. At my company, we must decide in October for the upcoming calendar year.
So, using my example, if I wanted to use pre-tax dollars to pay for my laser vision correction, I would need to allocate the proper amount in October of this year, and get the surgery done no earlier than January 1, 2008. I would have to wait almost an entire year to get my medically necessary procedure. The concept of the spending account being "flexible" is lost on me.
Here is the real kicker about FSA's, if you do not use the money you allocated for authorized health care expenses by March 15 of the following year, you lose what you did not use. Where does the money go? My initial thought was that the IRS would take the money, after all, you set up an FSA to avoid paying excess taxes. However, it's your employer that gets to keep the money which you do not use! I think this is very wrong! A miscalculation about how much I anticipate to spend in health care now benefits my employer?
I think it's great that there is a system to pay for health care expenses pre-tax, but this system is awful. You need to be a psychic to take full advantage of the program, and if you're not, cha-ching! for either your employer (contributed too much), or the IRS (contributed too little).
4 comments:
Very interesting. Weird how your employer makes any benefit to you impossibly difficult for use.
I have always thought the FSA was the stupidest idea. Why can't you just write it off on your taxes? It is probably intended to pay for your kids' health care if your employer doesn't pay or expensive drugs you have to take every week.
I thought I might do $20 a month this year just for aspirin and cough syrup and bandages, but it turns out that's below the lower limit for my company. So I have never used this thing.
i agree... the flexible spending account is a total scam.... plus they don't cover JACK!
Yeah, we did this for a couple of years. This year I think we really lost track of things and are going to "lose it" and not a little either.
No more of this FSA stuff for our family. We're not organized enough. I didn't know the employer got the money back though. So unfair and too much of a guessing game.
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