I hope my friends at Save Flexible Spending Plans will forgive me for saying this, but I think it’s time to kill the FSA. Really.
In case you have no idea what I’m talking about, the Flexible Spending Account is an account that lets you take money out of your paycheck, pretax, and get it back when you have a co-pay, or any unreimbursed medical expenses. Prior to 2011, you could also use it for OTC (over the counter) medicine or other first aid products. Now, aside from insulin, you must have a prescription for any medicine you wish reimbursed. Once you have an expense, you need to submit a copy of your bill to your administrator, as companies usually outsource this process, sometime to the insurance company, other times to another company specializing in this. If approved, you get a check in the mail a few weeks later. Sounds like a lot of effort, doesn’t it? Time and effort by both you and the guy reviewing your bills. Somebody is paying for this, and the expense is wasted, spent on paper pushing not on healthcare.
There’s more to this, as if it weren’t complex enough, you have one chance to decide how much money to put in for the year, usually early November the year prior. Your kid needs braces, and you find out in February? Either Junior waits until next January or you miss using your flex account to fund the braces. The spouse need a $1500 root canal? There’s no planning for this. To top it off, any money you don’t spend by the end of the year (plus grace period if your company allows it) is lost. Presumably this offsets those who got back money they never deposited, perhaps leaving the company before the end of the year.
In my daily travels, I frequently find myself driving past Walden Pond, and the above quote comes to mind. With this in mind, I suggest that every change congress wishes to enact to the tax code must always create less code, not more. Instead of creating new accounts, create fewer. With regard to the FSA, kill it, and in its place offer a deduction, even for non-itemizers. The current FSA rules are a disservice to those who may need it most, those with unexpected expenses, and those who are fearful they can’t predict their cost and don’t want to risk losing their deposit.The alternative is the continued tinkering. More rules, more adjustments, more unhappy participants and employers. Stop this craziness. Simplify, simplify, simplify.
Are you a user of the FSA? Have you lost money by not spending your deposits by year end? What do you think of my plan to simplify?