Along with mistletoe and holly, some people have a much more prosaic thought dancing in their heads in December: How do I spend down my medical flexible spending account?
“I got a pair of glasses for my son,” Zimira Simkins said last week.
Simkins might be in a better position than most of us to understand the ins and outs of flex account spending. She’s an economics professor at the University of Wisconsin-Superior. We turned to her and a few other local experts for a primer on flex spending.
Here’s what we learned.
What is it?
If a medical flexible spending account is offered through your health insurance package, you can set aside money from each paycheck and draw money from that account for medical expenses that arise during the year, as much as $2,500.
Here’s a nice thing: “Those dollars are available right away if you were to incur a medical expense,” said Nathan Madill, an investment adviser/representative for Jablonski-Madill in Duluth.
In other words, if you will have set aside $1,200 by the end of the year but you need it sooner, you can spend it sooner.
But there’s something even nicer …
“The money that goes into those accounts is pre-tax dollars, so it’s a great way to pay for medical expenses without having to pay the taxes on them first,” Madill explained.
The tax savings can be significant.
“It’s like a 25 to 50 percent discount on the expenses you were already going to incur anyway,” said Timothy Flannery, CPA, the president of SuperiorUSA Benefits in Duluth.
“Whenever we put a thousand into a flexible savings account, we typically save around $250 to $270,” Simkins said of her family. “So, that’s $250 to $270 we can use to do something else, effectively.”
“If you don’t know exactly what you spend each year, that can be a pitfall,” said Elaina Johannessen, program director for Lutheran Social Service in Duluth.
That’s because of the “use it or lose it” nature of flex spending accounts. Whatever is left in your account on Jan. 1 is gone forever.
Or not. Most plans offer some sort of period during which you can still submit claims for medical expenses incurred during the previous year, Johannessen said.
That “run-out” period is usually between 30 and 120 days, Flannery added.
But depending on your plan, it could be better than that. Your employer may have a plan with a 2½-month grace period that allows you to continue spending down your balance until March 15, Flannery said.
Another possibility, available by law only within the past year, is a rollover provision that allows you to carry up to $500 into the following plan year, he said. Your employer can offer a rollover provision or a grace period, but not both, Flannery added.
Spending it down
The bottom line is that it still might be December, and you might have money to spend by Dec. 31, or March 15, if you don’t want to lose it.
What to do?
Check your plan, our experts said, but here are some of the general options:
- Medical appointments. “December is probably the busiest month for dental providers and for vision centers,” Simkins said. “It’s because everybody tries to hurry up and spend their money before (it rolls) over and gets removed from their accounts.”
Your plan might cover visits to a chiropractor and acupuncture, Simkins said.
“Maybe you’ve got a crick in your neck and you need to see a chiropractor, which you’ve never done before,” Johannessen said. “That can be something to check into.”
- Medications. That can include over-the-counter drugs, but only with a doctor’s prescription, Flannery said. But first aid kits, bandages, diabetic supplies, thermometers and other such items don’t require a prescription to be reimbursable. Most store register systems flag eligible items, he said, and special debit cards can be programmed to pay only for valid items.
You also can get a 90-day supply of prescription drugs that you take on a maintenance or periodic basis, Simkins said.
- Eyewear. Simkins suggested ordering a year’s supply of contact lenses or a second pair of glasses - perhaps a pair for driving at night or prescription sunglasses.
- LASIK surgery. The cost might exceed the $2,500 flex limit, Flannery said. But if your plan has the grace period, you may be able to draw on the money left over from the previous year plus the new year’s plan and cover the entire expense.
That’s not a comprehensive list.
“There’s a lot of gray area as to what expense can be deductible,” Madill said.
It can help to consult a third party with expertise, he said, because of “those odd or miscellaneous expenses that you’d never think about can be legitimately reimbursed.” For people with certain chronic illnesses, that might even include a specialty mattress.
Still, there could be a downside to medical spending in December. Simkins recalled that one year she had money left in December and decided to go ahead with something she’d been avoiding. She had all four wisdom teeth pulled.
“I sort of regretted doing it right before the holidays,” Simkins said.
But on balance, it was the right decision, she added.
“It was a worthwhile endeavor because I did need to use the flexible spending account funds, and it was something that I was putting off for too long.”