Healthcare FSAs: The Final Act Before the Curtain Closes

For employees who contribute to a calendar-year healthcare FSA and still have dollars left, December can be a big month.

How big depends on their plan rules.

For traditional healthcare FSAs, employees have until the 31^st to incur and claim eligible expenses and spend down their balance. If there’s a runout period, employees still need to incur expenses by the end of the month but have breathing room to file a claim.
When there’s a grace period to incur expenses and file claims, employees can continue to incur costs and file claims, but only until March 15.
Employees in plans with a carryover provision can keep unspent dollar in their account, but only up to a plan-defined maximum, with the highest amount being $500.

It’s possible that some employees are closely tracking their healthcare FSAs and are keenly aware of how much they still have left and when and if they need to spend it. But, more likely, they aren’t paying attention. Or, they may not fully understand the benefit or the rules.

Employers can have a big impact by helping employees be better FSA and healthcare consumers. The obvious result is employees not forfeiting FSA dollars. But, there’s also the intangible feeling of being appropriately prepared and in control of healthcare spending.

When it comes to benefits, employees are highly risk averse and they have negative feelings about the potential for a large healthcare outlay. Half are downright panicked by the thought of a weighty ER bill.

For employees in traditional healthcare options, an FSA can provide them with the equivalent of a financial security blanket. However, if they end up losing hard-earned dollars, employees may be less likely to enroll in an FSA in subsequent years, which could actually leave them with more exposure to costs and additional emotional angst.

Luckily, it doesn’t take much to effectively support employees’ use of a healthcare FSA, prevent the forfeiture of funds and enhance users’ confidence in their ability to be informed and prepared consumers.

At minimum, a few well-timed, personalized messages at year-end about any remaining dollars, along with information on plan rules and the timing to spend those dollars can help employees optimize the use of their account.

For these messages, it’s important that they are targeted only to impacted employees who need the information and may have to take action. Because of the timeliness of these communications, emails or texts are generally the best delivery method.

For traditional plan-year plans. Send a final reminder to those with a balance by the 15^th. If possible, include the amount of their current balance on the day you send the communication.
For plans with a runout. Send a final reminder after the first of the year to file for reimbursement.
For plans with a grace period. Send a reminder before Dec. 31 that the employee has until the end of the grace period to spend their balance and include that balance in your communication.
For plans with a carryover. Before the end of the month target any employees who still have a balance more than the carryover amount and let them know they need to spend the excess by Dec. 31. For those with a balance less than the maximum carryover amount, send a communication in early January that indicates how much the employee has carried over.

Your FSA administrator should be able to easily provide you with the data for these communications, or they may be able to send communications on your behalf to FSA plan participants.

Helping employees maximize the use of their healthcare FSA can increase their appreciation for these plans and enhance their financial well-being. And, since employees who are less stressed about their finances are more productive and engaged at work, supporting employees’ FSA plan use makes good business sense for employers.

For more tips on how to get employees engaged with their healthcare FSA, read our e-book.