Employers typically hold an open enrollment period in the fall, during which employees can select new health plans, enroll in a Flexible Spending Account, or make other changes to their coverage. There are planned changes this year that could be advantageous to employees, but could also expose them to financial hazards.
In 2023, two tax-advantaged health savings accounts, Flexible Spending Accounts (FSA) and Health Savings Accounts, will undergo substantial changes. (HSA). By allowing employees to save pre-tax income for medical expenses, these accounts can result in large cost savings. In essence, you save the amount of taxes you would have paid on the deposited monies.
In 2023, employees will be permitted to contribute up to $3,050 to an FSA, a 7% increase from the current maximum contribution of $2,850. In 2023, individuals who want to fund an HSA can save up to $3,850, a 5.5% increase from 2022, while families can save up to $7,750, a 6.2% increase.
These gains are advantageous at a time when inflation is at its greatest level in four decades, with consumer prices rising by almost 8% over the past year. However, employees must be mindful of a number of dangers, including the fact that Flexible Spending Accounts are “use-it-or-lose-it” schemes. In other words, the employer retains any unused funds.
According to Lisa Myers, director of client services, benefits accounts, at Willis Towers Watson, open enrollment typically occurs between the end of October and the beginning of November. Important are careful preparation and awareness of due dates.
According to research conducted by Money, U.S. employees underutilize FSA funds to the tune of nearly $3 billion yearly.
Take the following into account during open enrollment.
What is the difference between FSAs and HSAs?
Both accounts are meant to help employees pay for medical bills before taxes. FSAs are controlled by employers, while HSAs are owned by individuals.
Consequently, if you quit your job, your FSA will not accompany you. However, once you open and fund an HSA, the account belongs to you, just like your 401(k) does, even if you leave your job and begin working for a new employer.
Health Savings Accounts are intended for policyholders with high deductibles. Consequently, not all employees will be eligible for an HSA.
HSAs often offer greater flexibility than FSAs. Unlike FSAs, where unused funds are forfeited if they are not used by the claim deadline, unused monies roll over annually. In addition, HSA contributions are modifiable at any time, whereas FSA contributions are fixed during open enrollment.
Can I enroll in both the FSA and the HSA?
Myers of Willis Towers Watson stated no in general. A “limited purpose FSA” is a simplified version of a Flexible Spending Account available to HSA account holders. These accounts are restricted to eye and dental expenses, diminishing their usefulness.
Therefore, in 2023, employees who are eligible for both plans will need to determine whether it is more prudent to finance an FSA or an HSA.
How much should I save aside for 2023?
According to Myers, some companies provide tools to help employees forecast their potential annual health costs, but you may also evaluate your out-of-pocket medical expenses from the previous year to estimate your probable expenditures for the coming year.
Individuals with HSAs may also desire to set aside the amount of their health plan’s deductible, as this represents out-of-pocket expenses that can be reimbursed through their tax-favored account.
People who choose FSAs have more at stake, as underestimating their medical expenses may cause funds to accumulate in their accounts, which will eventually be repaid to their employers.
Which dates should I be aware of?
You must pay particular attention to the FSA reimbursement deadline.
Employers may allow employees to request the money up to two and a half months after the end of the calendar year. Nonetheless, you must establish if your company permits more time and note the deadline on your calendar.
Due to a pandemic stimulus package and the IRS easing the requirements for claiming FSA funds in 2020 and 2021, some employees may be surprised by the reporting deadlines for this year. However, these provisions have expired, thus persons holding FSAs in 2022 must withdraw their assets by the end of the year or within the grace period established by their employer in early 2023.
Myers noted, “That was a temporary relief due to the pandemic, so employees may have larger-than-usual balances in their health and dependent-care FSAs in 2023.” “It is necessary to review your account balances and the plan’s rules in order to plan your spending for the remainder of 2022.”
What items may I buy with my FSA funds?
According to Myers, employees are occasionally surprised to realize that their FSA plans cover Band-Aids, reading glasses, first-aid kits, and over-the-counter pharmaceuticals.
She advises individuals to visit FSAStore.com, which carries all FSA-eligible items, particularly if the deadline for claiming your funds is near and you need to use the money.
Myers also recommends that you verify your 2022 FSA balance and payment dates immediately, as opposed to waiting until the end of the year. Typically, a health service or commodity must be acquired in 2022 in order to qualify for an FSA claim in 2022. Waiting until the last minute to spend the money could increase the likelihood of hitting an impediment, such as if your eye doctor is booked, preventing you from renewing your prescription for new spectacles.