Healthcare FSAs

The Healthcare FSA allows employees to be reimbursed for medical expenses not covered or reimbursed by other insurance or plans like HSAs and HRAs. All expenses must be for qualified medical, vision, pharmacy or dental services as defined in Section 213(d) of the IRS Code.

The new healthcare reform law includes a change in the definition of a "qualified medical expense" and therefore a change in how funds in an FSA can be used. This change is also true for HSAs and HRAs. Under healthcare reform, HSA, HRA and FSA funds can no longer be used to purchase over-the-counter medications (such as aspirin, allergy and cold medications, etc.) without a written doctor’s prescription. The pharmacist must fill prescriptions for these medications to be paid for with funds from your account using your account debit card at point of purchase. There are still many over-the-counter medical products that can be purchased without a doctor’s prescription (such as contact lens solutions and diabetic test kits and supplies), so be sure to check before you purchase.

All medical care expenses must be incurred during the plan year and the "use it or lose it" rule applies to any funds not spent before the end of the plan year. Unlike HSAs, funds in a Healthcare FSA do not roll over and are not portable, if an employee leaves the company.

Until 2013, contribution limits to Healthcare FSAs are set by employers and there is no federally imposed limit. Under healthcare reform, effective 2013 contributions will be limited to no more than $2,500 annually. The limit will be indexed to inflation for future years.

Employees and employers benefit from lower taxes.