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What role do flexible spending accounts play?

Dr. Michael Roizen, MD
Internal Medicine
A flexible spending account (FSA) is set up for you by your employer and allows you (and sometimes your employer) to set aside money before taxes to pay for certain medical expenses over the course of the year that aren’t covered under your health insurance, such as eyeglasses -- if not covered -- and prescription co-pays. FSAs can vary quite a bit, so read the plan description carefully to find out how much money you can put in, what you can spend it on, how long you have to spend it, and what happens to the money if you don’t spend it.
While not supplemental insurance, a flexible spending account can be used in concert with an employer-sponsored health plan.
An FSA is an account established by an employer in which employees can automatically deposit some of their pre-tax income into a tax-advantaged financial account that can be used to pay for qualified medical expenses that insurance doesn't cover.
Such accounts can benefit employers and employees alike. Employers who are recruiting can tout an FSA as a great employee benefit, while both employer and employee can save money on payroll and Social Security taxes. Plus, if used correctly, an FSA can greatly offset an employee's out-of-pocket medical expenses and help pay for monthly health insurance premiums. Different types of FSAs can even be used to pay for an employee's day-to-day expenses of caring for a dependent or to cover adoption expenses.
The big downside to these accounts is that money not used in a health insurance year can't be rolled over into next year's FSA. In short, if you don't use it, you lose it.

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Important: This content reflects information from various individuals and organizations and may offer alternative or opposing points of view. It should not be used for medical advice, diagnosis or treatment. As always, you should consult with your healthcare provider about your specific health needs.