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Are flexible spending accounts still worth it?

A new rule is making these accounts less easy to use, say experts, but workers may still want to sign up.

By MSN Money Partner Oct 25, 2011 9:45AM

This post comes from Annamaria Andriotis at partner site SmartMoney.


SmartMoney on MSN MoneyAs workers pick their health care benefits over the next few weeks, experts say one option is looking less popular this year: flexible spending accounts.


A provision in the health overhaul that went into effect this year says that people who want to use their FSAs for over-the-counter medicines need to get a prescription first. But experts say the hassle of visiting a doctor before heading to the pharmacy has proven too much for many Americans.


While chain drugstores have yet to release data, online pharmacy says sales of OTC medicines have plummeted from 67% to 3% of their total sales so far this year. "People have sort of given up," says Brian Caswell, pharmacist and owner of Wolkar Drug in Baxter Springs, Kan. "They're irritated now."


Indeed, for many of the 35 million consumers who have FSAs -- employer-sponsored accounts that allow them to use pretax income to pay for health expenses -- the extra burden doesn't end with getting a doctor to write out prescriptions. Experts say some pharmacies are also unwilling to fill them. That's in part because of the extra paperwork and time required to process these prescriptions, says a spokesman for the National Community Pharmacists Association.


Wasted money

Because of the rule change, experts say some users may be losing money. Even before the rule change, many workers forfeited money in their FSAs. Employees typically have 12 to 15 months to spend the money in the FSA; what they don't use, they lose. The average participant who forfeited funds in a flexible savings account lost $43 to $60 last year, according to benefits consulting firm Mercer. Under the new rule, it's likely that amount will rise, says Tom Harte, vice president at the National Association of Health Underwriters, which represents employee benefit brokers. Post continues after video.

Given the extra hoops to jump through, some workers may stop participating in FSAs. "We've already heard from employers that employees are very frustrated and have told them they won't be continuing their FSA next year," he says.


Unfortunately for these workers, the extra savings can be substantial. Employees who contributed to an FSA in 2010 stashed an average of $1,426, according to Mercer. Those same employees would lose up to roughly $400 in tax savings (this figure varies depending on their marginal tax rate) by not using an FSA next year, says Harte.


There's help

Some companies are stepping in to make the process easier. Many third-party administrators of FSAs are offering a so-called master prescription form that allows employees' doctors to list the OTC medications their patients need throughout the year, says Harte. The doctor only needs to write that prescription once but the patient can use their FSA each time they make that OTC purchase. The form is typically available on the third-party companies' websites, although some doctors' offices also provide it.


Some retailers are also adding services. This week, launched a new program where it contacts customers' doctors directly to get new prescriptions at no additional cost. The company says it might charge for the service in the future.


WageWorks, which provides flexible spending and health savings accounts to nearly 1.8 million people, has signed up with to offer employees an easier way to use their FSAs for over-the-counter medicines.


Separately, CVS has been tracking health-related purchases made by customers who shop with the store's ExtraCare rewards card. At the end of the year, customers can ask CVS for a full list of the OTC medications they bought, and then bring that list to their doctor to fill the necessary prescriptions for an FSA reimbursement. (FSA payments can be made even after the medicine has been bought.)


Unfortunately for FSA users, this hurdle won't be the last. Starting in 2013, the total amount employees can stash in their FSA will be capped at $2,500 per year. Currently, there are no official limits, though most employers place annual caps of about $3,000 to $5,000, says Kelly Traw of Mercer.


That means budgeting for medications and even surgeries, which consumers often rely on their FSAs to help pay for, will get more challenging during next year's open enrollment.


More on SmartMoney and MSN Money:

Oct 25, 2011 6:02PM

Many items had already been eliminated from qualification on the LAST watch, so don't go getting all uppity there newtaxes!


Congress, not the President, tweak these things constantly.


As soon as enough people figure out how to utilize something... they take it away.



Dec 23, 2011 10:32AM
I'm getting LASIK with my FSA...YAY!!!!
Dec 27, 2011 4:00PM

Yes this was a tax increase by Obama...

Sock it to the working man

We would by the cheaper health Insurance and use it for deductables and if any money was left over pay for contacts or other stuff. 

Oct 25, 2011 1:58PM
So this FSA cut is really an Obama tax increase for those of us making less than $200,000 a year?  We didn't see that coming.
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