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Frequently Asked Questions

• What is an FSA
• Who is eligible to set up an FSA?
• What is an “eligible expense” under a healthcare FSA?
• Which “dependent care expenses” are eligible for reimbursement under a dependent care FSA?
• Can employees change their elections or stop contributing money to their FSAs at any time during the plan year?
• What if employees do not use all of the money that they deposit in their FSAs by the end of the plan year?

What is an FSA?

A healthcare flexible spending account (FSA) is a benefit that allows employees to set aside pretax funds on an annual basis to pay for qualified healthcare expenses. These funds can be used to pay for medical, dental, and vision expenses that are not covered by insurance. This includes copayments, deductibles, chiropractic care, and over-the-counter medications. A dependent care FSA or Dependent Care Assistance Program operates in the same manner as a healthcare FSA. Dependent care FSA funds can be used to pay for qualified dependent care (e.g., childcare, eldercare, etc.) so that the employee and his or her spouse can work. The IRS sets annual maximum amounts for all types of FSAs.

BCBSRI has developed a joint marketing arrangement with London Health Administrators for the administration of flexible spending accounts.

To learn more about healthcare FSAs, please visit: www.irs.gov/pub/irs-pdf/p502.pdf. Additional information on dependent care FSAs can be found at: www.irs.gov/pub/irs-pdf/p503.pdf

Who is eligible to set up an FSA?

FSAs can only be set up by employers. Employees and self-employed individuals cannot establish FSAs.

What is an “eligible expense” under a healthcare FSA?

An “eligible expense” is one that could be claimed by the participant as a medical expense deduction on an itemized federal income tax return. These expenses must not be reimbursed by insurance or any other source. Eligible expenses are defined in IRS code section 213(d). However, FSAs cannot be used for health insurance premiums, long-term care coverage or expenses, or amounts covered under another health plan.

Which “dependent care expenses” are eligible for reimbursement under a dependent care FSA?

Care for a “qualifying dependent” that allows employees (and their spouses) to work are likely to be reimbursable from their dependent care FSAs. A “qualifying dependent” is any dependent who is either under the age of 13 or who is incapable of self-care and has been living in the employees’ homes for more than one-half of the year. For example, a child, incapacitated spouse, or elderly parent living with the employee would be an eligible dependent.

Can employees change their elections or stop contributing money to their FSAs at any time during the plan year?

No. Federal regulations state that once employees have enrolled, they cannot change their elections unless they’ve experienced a family status change. You should be able to provide your employees with a list of qualified family status changes that may allow them to alter their original account allotments.

What if employees do not use all of the money that they deposit in their FSAs by the end of the plan year?

FSAs are subject to a “use it or lose it” rule, which was recently modified. The original rule stated that any unused funds by the end of the plan year would be forfeited. Recently, the rule was modified, allowing employers to provide their employees a two-and-one-half month grace period immediately following the end of a plan year to use up funds for the previous year. At the end of this grace period, any unused funds that remain would be forfeited.