A few months ago, when my husband and I qualified for health insurance under his employer, we received a health care debit card, also known as a flexible spending account. Some plans require you to submit paperwork as if you were requesting a rebate/refund, but ours issued VISA debit cards and also will allow us to request a refund via paperwork.
After tallying up how much money you predict you’ll spend on medical expenses in the coming year, you put the amount in your flexible spending account. Let’s say you chose to put $1,000 in it.
The money comes out of the employee’s salary BEFORE TAXES. $1,000 pre-tax dollars. Yup. So you’d be saving $250 if you are in the 25% tax bracket, according to BankRate’s calculations. And that’s only the beginning.
Because the funds are automatically withdrawn from your paycheck, you don’t miss the money. If you get sick or cut your finger while chopping vegetables, you can go to the doctor and know you already have funds to pay for it, separate from your normal monthly budget.
While it’s difficult to predict all of your family’s medical needs for the coming year (because honestly, how can we know that?) you can start small and assume each family member will visit the dentist twice per year, the eye doctor once, and general practitioner once.
Factor in the co-pays for all of your doctor’s visits and prescriptions, and that should be the minimum amount you put in the flexible spending account. If you can afford it, add an extra cushion. But remember, you won’t get the money back. It’s a spend-or-lose it deal (check your individual plans to be sure of those details).
I’d like you to visit the fellows of Frugalize to read their take on FSA. Their blog is full of fantastic information.
Because this post is getting long, in part 2, I will write about how you can use your unspent FSA funds.
Note: I am NOT an expert on flexible spending accounts! Please be sure to read through all of your FSA literature. And, if you see something in this or the next (or any of my posts, for that matter) that you’d like clarified, please let me know.