A previous column discussed the benefits of a Health Savings Account (HSA). In order to contribute to an HSA, an employee must be enrolled in a high deductible health plan (HDHP) which, for the year 2018, is a health insurance plan that has a minimum deductible of $1,350 for self only coverage and $2,700 for self plus one or self and family coverage.
Not all employees can afford to enroll in an HDHP. For example, they and/or members of their families have some medical problems and make frequent visits to the doctor, thereby quickly using up any available funds in their HSA. In that case, an alternative for an employee is to enroll in a health care flexible spending account (HCFSA).
An HCFSA allows an employee to be reimbursed for out-of-pocket medical, dental or vision expenses. There are no restrictions as to the type of health insurance plan an employee must be enrolled in in order to enroll in an HCFSA. An employee can be enrolled in a Federal Employees Health Benefits (FEHB) program- sponsored fee-for-service, preferred provider organization, health maintenance organization, or private individual or another group sponsored health insurance plan.
Employees who work for an Executive Branch agency or an agency that has adopted the Federal Flexible Benefits Plan (“FedFlex”) can elect to participate in the federal flexible spending account program, the FSAFEDs program.
The money contributed to an employee’s HCFSA is set aside before federal and state income taxes, Social Security (FICA) and Medicare Part A (hospital insurance), payroll taxes are deducted. This results in an overall tax savings ranging from 20 to 50 percent. The average annual tax savings for an employee earning $50,000 who contributes to a HCFSA is approximately $600.
An employee must be eligible to enroll in, but does not necessarily have to enroll in, the FEHB program in order to be eligible to enroll in an HCFSA. The HCFSA reimburses qualified medical, dental, or vision expenses not covered by or reimbursed by a FEHB program plan, a FEDVIP plan, or any other health, dental or vision insurance plan that an employee may be enrolled in. These insurance plans include TriCare or a spouse’s private company-sponsored health, dental or vision insurance plan. The eligible expenses of the employee, the employee’s spouse, and the employee’s eligible tax dependents may be reimbursed through the HCFSA.
For 2018, employees can contribute to their HCFSA a minimum of $100 to a maximum of $2,650. Spouses of employees who are also federal employees can contribute a maximum $2,650 to their HCFSA for 2018. Employees should use their 2017 out-of-pocket medical, dental and vision expenses as an estimate of what their out-of-pocket expenses might be during 2018. The following worksheet can be used to estimate these expenses:
Health Care Personal Expense Worksheet
The worksheet below can help you estimate the amount you should put into your Health Care FSA. Remember you can include all non-reimbursed expenses – not just for yourself but for all dependents.
Qualified medical expenses are those specified in the plan that would generally qualify for the medical and dental expense deduction on an individual’s tax return. These expenses are detailed and explained in IRS Publication 502 (Medical and Dental Expenses) which can be downloaded at www.irs.gov. Non-prescription medicines other than insulin are not considered qualified medical expenses for HCFSA reimbursement purposes. A medicine or drug will be considered a qualified medical expense for HCFSA reimbursement purposes only if the medicine or drug: (1) requires a prescription; (2) is available without a prescription but the individual gets a doctor’s prescription for it; or (3) is insulin. No type of insurance premium – health, dental vision or long term care, may be reimbursed from an HCFSA.
Those employees who are enrolled in an HDHP associated with an HSA are not eligible to enroll in an HCFSA. But these employees are eligible to enroll in a “limited expense” flexible spending account or a “LEX HCFSA”. A LEX HCFSA reimburses employees for eligible out-of-pocket dental and vision expenses not covered by the FEHB and FEDVIP programs. In fact, a LEX HCFSA may be an alternative to enrolling in separate dental and/or vision insurance offered through the FEDVIP. The LEX HCFSA has the same contribution limits as the HCFSA.
Eligible employees who choose to enroll in the HCFSA or the LEX HCFSA must do so only during the annual benefits “open season”. An employee must enroll or reenroll in a FSA every year.
Enrollment is made on the FSAFEDS Web site at www.FSAFEDS.com. Elections made during the “open season” will be effective Jan. 1, 2018. Eligible expenses for reimbursement must be incurred between Jan. 1, 2018 and Dec. 31, 2018. Annuitants cannot enroll in an HCFSA or a LEX HCFSAs. Employees who plan to retire during 2018 can – and should – enroll in an HCFSA or a LEX HCFSA and incur qualified expenses before they retire and use their HCFSA to be reimbursed for their and their qualified family member’s out-of-pocket medical, dental and vision expenses.
Effective with the 2015 plan year, HCFSA and LEX HCFSA owners are able to carry over up to $500 of current funds into the next plan (calendar) year. An employee must still re-enroll in the HCFSA or LEX HCFSA during the “open season” if he or she has $500 or less remaining in his or her HCFSA or LEX HCFSA funds as of Dec. 31,2017 and wants to carry over these unused funds to 2018 but does not want to contribute additionally via payroll deduction during 2018. Any remaining LEX HCFSA or HCFSA funds exceeding $500 as of Dec. 31, 2017 will be forfeited.