Not-So-Flexible Spending Accounts

Between my wife’s broken foot and my son’s infection, I’ve spent quite a bit of time in doctors’ offices this past week. This week, we have doctor’s appointments every day except Friday. Next week, we have appointments Monday and Tuesday. Every visit means another co-pay. We’ve got a pre-tax health care spending account (HCSA), but we depleted it ages ago. Every year I sign up for the account, I worry that I might be putting too much into it. Every year, I end up wishing I had put more in. Which brings me to my gripe of the day. Now, don’t get me wrong. I love HCSAs. My employer calls them “Flexible Spending Accounts”. The problem is, they’re really not that flexible at all.

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Here’s the way our plan works: During annual open enrollment, if I choose to enroll in a HCSA, I have to choose a dollar amount to contribute to the plan every pay period. Then, for the next year, that amount is deducted from each paycheck before taxes, to fund the HCSA. Then each time I have a medical expense not covered by insurance (like a co-pay), I can request to be reimbursed for that expense from funds in the HCSA. Thus, I can pay for these expenses with tax-free dollars. One of the great features of these accounts, is that I can request funds from the account before I’ve actually made the contributions — which in effect is an interest-free loan.

So why am I griping? Well, the problem lies with the amount I choose to contribute, and the fact that I can’t change that amount during the course of the year. At the beginning of the plan year, I have to estimate the year’s medical expenses, and choose the amount based on that. But, I can’t predict the future. So, I estimate conservatively, to avoid losing the funds in the account.

I’d really like to see the rules for HCSAs relaxed a bit, to allow participants to make changes to the contribution amount over the course of the year. I think it would encourage more people to take advantage of them. I’m sure there’s some reason they don’t work like this (administrative overhead comes to mind), but if they did, it would certainly almost always work out to my advantage, at the expense of Uncle Sam. And suddenly it all becomes very clear..

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