Tuesday, March 10, 2009

Having A Flexible Spending Account

We have health insurance and always have. We pay for it through my husband's job and, let me be clear, I am TOTALLY OKAY WITH THIS. I could go on and on about the reasons I've been glad to have it, but instead I'll just give you the biggest one--

When our daughter was born at 24 weeks gestation and stayed in the hospital for 3 1/2 months, the bill was over 750k. That's right. Over three quarters of a MILLION dollars. More than the cost of all three homes we've owned combined. Yikes. Our portion? $250. Total. That was it. So, yes, premiums can be costly. But in the grand scheme of things? Still worth it.

All that being said, we still have to pay for health-related things of course... co-pays, deductibles, prescription co-payments, over the counter medications, my contacts, etc., etc. A couple years ago, my husband and I sat down and looked seriously at setting up a flexible spending account (FSA) to put aside money for these costs pre-tax. We crunched some numbers and figured out how much we KNEW we would spend and elected to have that amount pulled out monthly, before taxes, from my husband's paycheck.

The end result?

We really didn't miss it. It didn't really feel like his paycheck "shrank", per se. But when we had to pay up for something "medical", we had a debit-type card with money already set aside for that purpose. Easy and painless. We no longer had those pesky $15 co-payments popping up at odd times and throwing the budget off-kilter. It really worked for us!

The bonus? When my husband's position was suddenly eliminated only a couple months into the year, we were informed that the FSA is fully funded at the start of a new year by the company. So, essentially, even though WE had only "paid into" the account for two months, the full year's allotment was in there. And we were perfectly free to use it all before his position ran out.

Yet another thing to be grateful for!

Having an FSA has paid off for our family. It definitely Works For Me!

How about you? Does your family have an FSA? Has it been helpful or a burden? What questions do you have about FSA's? I'll try to answer them in the comments!

To see more things that are "working", check out Works For Me Wednesday, hosted at We Are THAT Family.


Heather Benza said...

This is great info that everyone should be doing. I am going to lok into this for us too. BTW your insurance was fantastic! Between my 2 weeks antepartum/delivery/postpartum and my son's 59 days in NICU we paid $5000 of $304K. I sure would have loved to keep that other $4750 in my hot little hands!!

Phoebe said...

This sounds like something that I could definitely go for. With are taxes we are wanting to set aside our "max-out of pocket" amount that i determined by our insurance, so that we don't have to worry about throwing the budget off w/a copay like you said.

My question is, if I don't use it all up this year, will it move on to the next. And, what about interest? No? Currently our decision was to put it into our savings (which is tied to our checking) so that we could earn a little bit on it.

Kim said...

Phoebe: You lose whatever you don't use by the end of the plan year. Some FSA's will allow you to submit receipts up to 3 months after the end of the plan year, but they have to be for the plan year. As far as sticking the money into a savings account, you don't really gain anything that way. The FSA money is taken out of your paycheck before taxes, so if you set aside $20 from your $100 paycheck for your FSA, you now only pay taxes on $80.

I love our FSA plan. This is the first time I have had it available to use, and I am still learning what items are covered, but it includes Dr co-pays, prescription co-pays, and all kinds of over the counter medication, like aspirin, atnihistamines, contact solution, and lots of others. The FSA administrator provides a list of eligible items.

One of the many things I like about it is that it takes the sting out of medical expenses, as long as you plan it right. This year, my husband had out-patient surgery, which I did not plan for in September (our plan year starts in October), so at worst, I will have to pay for some medical expenses out of pocket in August or September this year.

JessieLeigh said...

Heather- Weren't we so lucky with that insurance? Yet another major benefit of working for Bank of America. Huge companies can offer incredible insurance for not much money thanks to their sheer numbers!

Phoebe- Kim's totally right! Just remember that for every dollar you have put into an FSA, you avoid taxes meaning you save whatever percentage tax bracket you're in (10%, 15%, 40%, etc... but never less than 10%!). So... unless you find a savings account that pays MORE than 10% (and if you do, please let me know! ;)), you're saving more money by using an FSA. It's just important to calculate how much money you will DEFINITELY use. If you have money remaining toward the end of the year, you can always stock up on OTC medicines, contact lens products, even "overnight" diapers...

Sharon said...

The fully funded is great isn't it? My dad just found out the downside though. If you've put $$ into it and haven't used it when you lose your job, you don't get it back. :-/