Flexible Spending Accounts: Employees need the basics during open enrollment

Inflation has driven up costs across the board over the past year. And in an environment where nearly two-thirds of Americans already delay or avoid healthcare because of uncertainty related to their finances, this benefits open enrollment period has the potential to be more complicated and confusing than normal for employees. A driving factor in that confusion is the temporary regulatory changes affecting flexible spending accounts (FSAs) that were implemented during the COVID-19 pandemic.

More than 32 million individuals and their families use an FSA to care for their health and wellbeing – from everyday needs like allergies to preventive health services to mental health care to elective surgeries. And while these tax-advantaged accounts may be popular, employees generally have a low understanding of how they work.

As human resources professionals, you can play a significant role in educating your employees so they are able to maximize their account dollars and avoid losing unused funds. According to a recent survey of people who shop FSAstore.com, account holders said if they understood what’s eligible, they would be more likely to enroll in an FSA (98%) and would be more likely to increase their contributions (85%). In fact, those who shop FSAstore.com contribute, on average, $600 more to their FSA than the industry average.

Where to focus your time and energy during open enrollment?

Start by communicating these four things to employees clearly, consistently and often during open enrollment meetings and through your employee communications this year.

1. Your FSA plan spending deadline: While Dec. 31 is still the most common FSA spending deadline, your organization may have implemented the temporary extensions that were enacted during the COVID-19 pandemic that allowed you to extend your annual deadline. What most people don’t realize is that those extensions expire at the end of 2022, which means your employees likely have more money in their accounts than normal and may not be aware of what their deadline is. They may even have 2021 FSA funds left to spend by Dec. 31 of this year. Be sure to clearly communicate your deadline and be sure employees understand what happens to unused funds.
2. If offered, your FSA grace period deadline: As if managing one deadline wasn’t enough, your organization may also offer an FSA grace period, which gives employees an additional 2.5 months (until March 15 for those with a Dec. 31 plan year-end date) to spend unused funds from the current calendar year. If your organization implemented the temporary option to extend or eliminate your grace period, keep in mind that this also is expiring in 2022. Your employees need to understand that they may have an extended grace period still in play for their 2021 FSA plan year that expires this December and that the normal grace period is in effect for plan years ending on Dec. 31, 2022, where any unused 2022 funds may need to be spent by March 15, 2023.
3. If offered, your FSA carryover amount: Your organization may offer an FSA carryover that allows a portion of unused funds to roll over to the next plan year. During the pandemic and for FSA plan years ending in 2020 or 2021, employers had the option to increase the amount of that carryover to allow employees to carry over their entire unused FSA balance. While this gave employees more time and flexibility to use their FSA funds, it has also left many account holders with more money than normal to spend by the end of 2022. Be clear about your carryover policy, if you offer one, and help employees understand exactly how much they have left in their accounts and how much they can carry over into 2023 (the maximum carryover allowed for 2023 is $570).
4. How employees can check their FSA balance and deadline: Given all of the changes made in response to the COVID-19 pandemic, along with disruptions to healthcare, it’s understandable that employees might not know exactly what their FSA balance is. Current estimates are that FSA holders forfeit more than $1 billion in unused funds to a missed deadline, and that number may be even higher this year, due to a low understanding of FSA rules. Show employees how to check their FSA balance with your account administrator online, if that’s an option. Also, be sure to remind employees to toggle between plan years so that they are also checking to see if they have a 2021 FSA balance left to spend by this December. Once they know their deadline, they can also enroll in deadline alerts at FSAstore.com.

Benefits open enrollment is a time of opportunity for employers and employees, but a low understanding of how offerings like FSAs work can prevent employees from enrolling and can cause them to lose hard-earned healthcare dollars. Use this time to reinforce the FSA basics for your employees so they can make the most of unused funds that may have carried over from the pandemic, and help them start 2023 off right.