Flexible Spending Account Changes for 2011 and Beyond

Flexible Spending Account Changes for 2011 and BeyondOpen enrollment season is just around the corner. With that in mind, I wanted to remind you of some changes that will soon be affecting Flexible Spending Accounts.

For those that are unaware, an FSA allows you to use pre-tax dollars to pay for medical expenses. Starting in 2003, over-the-counter (OTC) medications were added to the list of allowable expenses, thereby giving consumers a lot of flexibility in how they could spend their FSA money.

As I’ve outlined in the past, FSAs operate under some fairly Draconian “use-it-or-lose-it” rules. More specifically, if you don’t spend out your balance, you lose whatever money is left over at the end of the year. Given this stipulation, the OTC allowance was very valuable addition.

No more OTC purchases

Now for the bad news… Starting in 2011, OTC medicines will no longer be eligible for reimbursement unless you are expressly directed by your doctor to use them. In other words… It’s going to be a heck of a lot harder to spend down your FSA balance is you set too much aside.

Yes, you’ll still be able to use your FSA to pay for deductibles, co-pays, orthodontia, and eyeglasses, but you’ll no longer be able to claim OTC allergy medications, pain relievers, vitamins, antacids, and so on.

In other words, be very careful when deciding how much to set aside in 2011.

Caution: falling limits

Looking a bit further ahead, another big change will be a federally-mandated $2500 cap on FSA contributions starting in 2013. This new limit is part of the healthcare reform legislation that was passed this past spring.

As things currently stand, FSA limits are determined by employers, and it’s not uncommon to be able to set aside $5k. Depending on your income tax bracket and level of healthcare spending, that can be a huge benefit.

54 Responses to “Flexible Spending Account Changes for 2011 and Beyond”

  1. Anonymous

    Really don\\\’t see how eliminating the OTC benefit can lower costs. now you have to go to a doctor,( copay + insurance charge), then go to a pharmacy to get a prescription filled for something that is 5 feet away on the normal shelf. your insurance company is now involved, and that can only drive costs up. so the natural reaction is to reduce your FSA contribution so you don\\\’ tlose it, and not that is taxable income. thanks for the tax increase, Libtards!

  2. Anonymous

    Really don’t see how eliminating the OTC benefit can lower costs. now you have to go to a doctor,( copay + insurance charge), then go to a pharmacy to get a prescription filled for something that is 5 feet away on the normal shelf. your insurance company is now involved, and that can only drive costs up. so the natural reaction is to reduce your FSA contribution so you don’ tlose it, and not that is taxable income. thanks for the tax increase, Libtards!

  3. Anonymous

    Is it possible to pay off an outstanding bill for surgery from a previous year with this year’s contribution? Where can I find the appropriate substantiating info? Thanks for any help. I do need it right away.

  4. Anonymous


    For people with a chronic condition, the FSA can be used for OTC medicines with a doctor’s prescription. Get your husband’s doctor to write a note that he needs to take NSAIDs daily, and send it to the FSA; now they’re covered.

    This is precisely the same policy that FSAs have always had with vitamins — now it applies to other OTC medicines as well. When my doctor told me I was Vitamin D deficient, I asked for a prescription, bought some, and included it in my FSA claim. You can do the same thing.

  5. Anonymous

    Bonnie says:

    “Let’s all agree to be thankful that we still have benefits to get riled up about.”

    I consider health care to be a basic human right, especially in a nation as blessed as ours. Your cancer example just reinforces that. Someone dying of cancer with no medical care is inhumane. I don’t think those of us who have jobs and health insurance should settle for just being thankful that we have it. That statement makes me sad. I think we should be sad, even outraged, about those who don’t have adequate healthcare, and acknowledge that our health care system is broken.

    I remember a time in our country when we didn’t just settle for the scraps our government and big businesses were willing to throw us.

    That being said, this new OTC rule is very disappointing for families like mine. We rarely go to the doctor (thank God), but we buy a lot of OTC medication: Allergy pills for me. Pain relieve/fever reducer for my preschooler when she gets colds. Tylenol cold and Nyquil for when we catch her colds. Advil and Excederin for the occasional migraines. Band-Aids, Neosporin, Cortaid for summer. I could list more. Given that this is most of our “medical care”, and we have to set the money aside anyway, it was nice to be able to pay for it with pre-tax dollars. I have several friends who changed to HSA plans simply for this reason (at my husband’s job they only have one plan).

    I do not see any reason for the change, except as a sneaky, back-door way for the government to get more tax dollars from the middle class. I voted for Obama, and for the Democratic members of Congress from my state, and am very disappointed, as this was not the “change” I was “hoping” for.

  6. Anonymous

    How about people with chronic conditions who use over the counter drugs to help manage it? We go through Aleve in my house like m&m since my husband has a neurological condition that results in him needing anti-inflamatory pain killers just do get through each day.

    Hey everyone – before you judge why I need my meds, consider that you should be grateful you can’t comprehend where that $2,500 is going. Consider that it helps with the portion of the MRIs received and other expensive treatment that we are forced to pay because of our mediocre insurance. It will cover the balances we owe from our portion of insurance coverage (which totals in the thousands annually).

  7. Anonymous

    The $2500 limit is a big deal if you have no dental insurance and you have 4 children. I’m glad we have HSA instead of FSA so far. We spent 1200 last year for the 6 of us to see the dentist twice a year, and I still haven’t had my $900 procedure done. We are a healthy family on a HDHP with HSA, with no chronic conditions or daily meds, and we still used over 2500 from our HSA on dental and medical OOP. I am wondering now if I should take advantage of the 6,150 limit for our HSA and create more of a carryover, in case the limit on HSAs goes down in 2012. The contribution limits on both the FSA and HSA should be directly linked to how much of a deductible one has. W

  8. Anonymous

    the very idea that there is such a thing as a democrat or a republican government who represents us is the problem. the divide is clearly between the haves and have nots.

    the man in office is a front for the corporations behind him. who benefits from this decision? Prescription drug companies.

    We no longer live in a democratic country…your 2 choices to vote are the same choice…clearly the results have been the same for the last 25 years. wakeup and smell the coup. how many times are you going to ping pong back and forth between your abusers.

    they are irradicating the middle-class, and you are next. now go back to your reality shows, keep buying walmart products and call yourself free.

  9. Anonymous

    I don’t really think the $2500 limit will be a big deal now that OTC are not claimable. Most Americans keep a level much below $2500. However it will create a lot of paperwork and doctors visits as people get prescriptions for Tylenol and other other common OTC drugs.

  10. Anonymous

    All this complaining because you won’t get quite as big of a tax break next year. Really?!? Did you really even notice the tax break? Did it push you into a lower tax bracket? For most of us, the answer is no. Do you like your FSA because it “paid” for your medications, office visits, glasses, etc.? Don’t forget, YOU contributed this money to the fund. It came out of your paycheck. When the limit is lowered, your net pay will increase if you were previously contributing the full $5,000. I realize some of you are lucky to have your employer contribute for you but the vast majority of us don’t have that. So, when the limit is lowered to $2,500, put the other $2,500 that you would have contributed into a savings account and use that every time you go to the doctor or pharmacy. Put the money you would have set aside for OTC meds through your FSA in that savings account, too. If you think about it, on a $5 bottle of Advil your tax savings would have been minimal under the FSA. Is this really a big deal to you? Let’s try and be realistic about this.
    Hey, another thought is if your employer offers an HDHP with HSA, try enrolling in that. An HSA, in many ways, is better than an FSA. You don’t have to use that money before the end of the year, you can take it with you if you leave, you can use it to pay for certain premiums, etc. I have an HSA and some years I use the money I set aside, other years I don’t but I can contribute more than $5,000 if I choose to and I can take it with me when I leave. Don’t be afraid of a High Deductible plan, they’re really not as bad as you think. I know some people don’t have this available to them, but if you do, try it.
    And please, stop bashing people who “are lazy and don’t work” and you have to pay for them now. This isn’t a new concept, If you work for an employer that offers you a health plan, it’s happening today, except that you’re paying for people that work with you. Each and every one of your coworkers that uses the health benefits you’re offered is contributing to your cost and you to theirs. That’s how benefits work. Healthy people pay for sick people. It happens today under a non government mandated system, it will happen if/when the government mandated care actually starts.
    It’s all about perspective. You could have stage IV cancer with no job because you’re too sick and no health care to pay for your treatment so you suffer through the pain of cancer without treatment or medication. Would you really care so much about whether your FSA limit is lowered or your OTC meds are pretax at that point? Not likely.
    Let’s all agree to be thankful that we still have benefits to get riled up about.

  11. Anonymous

    It’s amazing how some of you are so judgemental about other people’s health expenses. My husband and I tried for our first child this year. We got pregnant and unfortunately lost our baby at 10 weeks. Just 2 weeks after my surgery to remove the baby (because a natural miscarriage could have resulted in me bleeding out), I was diagnosed with gestational trophoblast disease and have had to get weekly blood tests, extra ultrasounds to check for retained tissue, possible chemo and so forth. 11 weeks after that, I’m still not out of the woods. I was HEALTHY before all of this. I was fortunate to have a good medical plan and my out of pocket expenses ended up at over $1700 for all of this not even including prescriptions or over the counter meds. My husband (also HEALTHY) could very easily hit $1300+ as well if he used up all his annual benefits. You now see how 2 (otherwise healthy) people with GOOD benefits can easily end up spending over $3000. If you have multiple miscarriages in on year (which many women do) and then a pregnancy that goes to term, you could really blow through your FSA account and then some, just to get your FIRST child. This is for otherwise HEALTHY people. If you or your kids need braces or have chronic conditions, it adds up as well.

    As for wanting additional children, it’s no one else’s business as long as the couple is able to pay for schooling, food, housing, clothing, etc for those children. If you want to put a cap at one, how about telling all the parents who can’t afford even ONE child, that they shouldn’t be allowed to have them? Isn’t that really who’s going to benefit from this reform? The ones who aren’t even contributing?

    Socially, it’s really the right thing to do to make sure that everyone has health coverage, but to tell those of us who actually pay towards the system that we’re complaining is just screwed up because WE are the reason that the less fortunate and in many cases the unwilling will even get taken care of….and when our government is done bleeding us dry, we’ll all end up right there on the bottom.

    …Unless of course you’re one of the few billionaires in the world – because these days even a million dollars isn’t going to get it done if you have a major health crisis.

  12. Anonymous

    Some of you people are nuts!!! I will be hugely impacted by the reduction of the max. I have kids. I ran out in August when I only put $2500 on my card. And the OTC thing. There are many Rx’s out there that are cheaper than getting the same thing by Rx. I.e. omperazole. My insurance won’t cover it because it’s available OTC. I can buy a 42 count OTC for about $20. By Rx…it’s nearly $50 for only 30 pills. Oh and I pay for my wife and kids insurance out of pocket. With the new “obamacare” that premium now sky rockets. If you think ins companies aren’t going to find a way to make a profit just because the gov says they have to do things a certain way you are crazy. Their lawyers are much better than the government yahoo’s that wrote the law.

  13. Anonymous

    Things have to be paid for, FSA is a Tax cut, but since it was a Tax Cut for the little guy and not the corporations it was expendable. SO now the cut is 2500 [in 2013] instead of 5000. I’ll miss it to since my out of pocket has been $4000 every year for 5 years [heart problems] and I use OTCs a lot.

    For the ‘blame Obama for everything’ crowd I’m sure you already know your answers. For the rest of us remember he was elected on Health Care reform but from the day after the election he and health care reform were under right wing attack.

    The same thing happened in 92 for Hillary and Clinton’s health care reform. Add to this the disaster left by Bush AND his Republicans [who passed everyone of his budgets over 8 years] and the pressure to cave to right-wing demands made cuts like this inevitable, so you blame who you want.

    Remember this FSA is: a little guy benefit, not a corporate one; a progressive idea, not a conservative one; if the limit is raised back to $5000 the Republicans will call it an entitlement, not a tax cut for the little guy; unless the OTC industry gets behind changing that benefit it won’t happen.

    If you want it back at $5000, OTC included and even extended periods before losing it all of those were progressive ideal, so VOTE PROGRESSIVE…put the car in ‘D’ [Democrats] not ‘R’ [Republicans].

  14. Anonymous

    I agree with Glenn Littrell but I want to add…Wow what a bunch of whiners! How spoiled are we? We want so much but we don’t want to have to pay for it. We should all count our blessings for what we have, which is a lot! Try living it up in Mexico as an average citizen. You would be thankful to have any healthcare or FSA then. We shouldn’t be afraid to pitch in and better our country. Shame on you!

  15. Anonymous

    The is AWFUL and stupid!

    FSA was a great thing…until now and it will impact my family greatly. My husband can only take certain OTC’s for cold and flu due to HTN. My dtr is on zyrtec everday. I like having the just in case family cold meds around when they are needed.

    PLUS, MD offices will be SWAMPED with every parent and other adult calling for a presecription for Children’s Tylenol and Preparation H!

    Was there really a need to change FSA? Absolutely not.

  16. Anonymous

    Love it when people using a government program complain about it being cut when they were probably opposed to it in the first place [FSA, FMLA]…or in hindsight [Social Security, unemployment Insurance, OSHA, FDA] as long as its there when they need it, and as long as we only eliminate it after they’ve used it or qualified for it.

    As long as progressive ideals benefit you then you don’t want to see it tampered with, but when your neighbors need it and you don’t [for that moment] then it becomes a government entitlement that’s wasteful.

  17. Anonymous

    I would always use the maximum 5k because of medical bills I from an illness. But I signed up for the 5k and then my husband changed jobs near end of year just before surgery and we lost all our money in the FSA account because it doesn’t carry over to next employer. So instead of reducing surgery costs with less taxable income, you can loose the entire amount you had withdrawn from your wages (e.g. 5k). No one has addressed the timing problem.

  18. Anonymous

    This is a time of austerity, you twits. We have decades of financial mess and 2 wars to pay for. Quit whining.

    Don’t like it? Okay, vote in the Republicans who charged you to the tune of $2T for a fun time in Iraq.

  19. Anonymous

    As a working person, I am very thankful to have enough money in my paycheck to be able to set some aside for healthcare. But, the people who don’t work or have not pushed themselves enough to advance in salary are going to want more of my extra cash so I say a fond farewell to a great thing. I can make more money sitting home on my rear complaining now that we all don’t have to work anymore and the government is providing all we need. Bless America!!!!

  20. Anonymous

    Don’t forget that we’re the lucky ones who have 1) a job, 2) a healthcare plan, 3) an FSA on top of that. We might look at it as your tax break has been, and still will be, subsidized by the millions who aren’t as fortunate as you. The big jobs push is always on small business. Most of those employers don’t provide an FSA benefit. For the sake of equity, why should an employeee of a local business not have access to such a perk like us. There would be some equity to chew on whilst we complain.

  21. Anonymous

    I think it’s pretty funny that some of you are blaming the Dems for this when this interestingly counterintuitive change to your healthcare coverage. If you just think about it this is highly likely to be one of the hundreds of changes demanded by Republicans in order to get this thing passed in the first place.

    Is it really that hard for people to think objectively about things or is it simply doing as your told all the time?

  22. Anonymous

    Right on target Missy!!! I say mothers should eat all the babies they have after the first one survives. Maybe if we kill the fat ones too!!! And then the brown eyed ones!!! Then, let’s look for some other thing like autism and eat those babies too. Yes, more than one child is a waste of FSA money. You are sooooo right on target.

  23. Anonymous

    Get it together people, so we’re supposed to feel sorry for you because you have baby #4 on the way? I stopped at 1 because I felt that was the responsible thing to do. Maybe you should be looking into practicing some birth control.

  24. Anonymous

    According to Section 9005 of the Health Care Reform bill, it states the effective date of the $2,500 FSA max “shall apply to taxable years beginning after December 31, 2010.” This means that this law goes into effect January 1, 2011 NOT January 1, 2013!! The only reference to 2013 is in the “Adjustment for Inflation” in paragraph 2. A lot of interpretations are different than what the acutal law is stating. Please read the actual law. Unless I am missing something, which I do not think I am because I have spent a lot of time studying this law, the new max of $2,500 will be effective January 1, 2011.

  25. Anonymous

    It is so easy to spend more than $2500 on your FSA. I put $5000 in mine every year and spend it easily. I use a holistic wellness M.D. who practices medicine the way it should be practiced. She looks for root causes of issues and treats causes, not symptoms. She looks at the body holistically, not part by part. Of course, insurance does not cover my visits or tests from the holistic M.D., so I pay it all out of my FSA.

    Maybe insurance reform should focus on getting everyone access to this great kind of health care, not the pill pushing, symptom masking treatment we get in America.

  26. Anonymous

    Just to clarify, I make the money in working wages that goes into my FSA. My employer has set a $5000.00 LIMIT that I can take out of my earned wages to set aside for medical costs, child care. They will now set that LIMIT at $2500.00. This is just a tax increase for me to shoulder thanks to Obamma. Just think, this will only affect those people with jobs and the need for such a silly program. The perfectly healthy and the lazy will still get all their free government money with no need to worry.
    Now I get to make another co-pay to my doctor for stupid requests for OTC items everytime I have a need for items that don’t make drug companies rich. Let’s see .. elite Obamma buddies, money money money, rich drug companies, only affects the working class low lifes who actually pay taxes, … simple!!!!!!

  27. Anonymous

    Bush did not CREATE the mess alone. It is a combination of MANY things in the past. However, Obama is not making it better with his half-wit reform ideas — and yes, I do blame Obama directly for this — this whole healthcare reform was HIS DOING. And, for those of you who think that >$2,500 in FSA is and of itself a problem (Jim), perhaps you need a reality check. Just because you don’t understand how expensive medical bills can be (and no, not because someone is sick and not taking care of themeselves and needs OTC drugs), doesn’t mean it’s not necessary. (try 3 kids, all who need glasses AND braces, baby #4 on the way, care for parents who need things like additional medical care assitance, etc. I can only HOPE I don’t need anything ‘extra’.) $2,500 per year won’t even come CLOSE to covering the costs of a portion of these things. And with many dental plans (in case you wern’t aware, Richard, EMPLOYEES do pay for thier medical benefits so your comment about employers taking care of this is ignorant) that don’t allow an exceedance of $1,500 per child for orthodontics (or other dental work), that leaves me about $10,000 – $15,000 out of pocket. (and, yes, for the record – I am married with a great job, good medical benefits THAT I PAY FOR, and I own up to ALL my bills – don’t even get me started on the child care pre-tax limits). For those of us who do our jobs, work hard and are involved, we are the ones that take the biggest hits when there is a socialistic approach like this…Where’s our breaks when we own up to it and taking responsibility for our choices? Limiting how much we can spend medically before we are taxed on it? Good one…why? Because we pay our bills, they know they can collect on it to pay for those that don’t!

    Look how well the bailout money went for all those people who were losing their homes…all the money did was buy more excuses and now those that work hard are paying for those that don’t. With this administration, it’s the NEVERENDING STORY!

  28. Anonymous

    The Dem’s obviously are not interested in hearing the concerns of those of us who have to work for a living. They are pandering to the welfare class who need more of our $ to live on…WTH!

  29. Anonymous

    I just use my FSA for Dr. co-pays, surgery co-pays, chiropractor, dental and RX co-pays. Very little goes to Neosporin, alergy pills, blood pressure monitor, knee/ankle wraps, hemoroid meds, eye drops, ibuprophen. I racked up $3500 by August 30, 2010. Where did it all come from, I asked. Maybe actually seeing it on paper and tracked annually helped me realize what a huge expense two people can be if you really look at it closely. I am fairly healthy but the plan I am on has kept increasing my out of pocket expenses and raising my rate to the emplyer to a freeking $1129.00 a month ripoff. I rang up a good total this year mainly because this O’Bammy Kare thing scares me to death. I do not want to get sick on the BammaKare plan. I can barely afford to make my payments as they are. No raise in three years, unpaid leave, loss of a few holidays paid. Price of living still rising. Hey, what’s a few more taxes hidden in pretty words? We all must share the pain of those lazy people who won’t work and need to be treated like kings in our America. When I was young, we were poor and no one cared. We got by. We made our life better by hard work and working hard.

  30. Anonymous

    I think this change in the FSA regs to $2,500 max was overdue. Allowing some people to skip paying taxes on an additional $5,000, after their employer provides them healthcare, is too much. And for aspirin?? They should never have padded these plans with over-the-counter drugs in the first place. However, I would like to see whether two spouses can deduct $2,500 each from their two different employers.

  31. Anonymous

    I believe the limit should be proportional to the number of covered individuals. I have 4 kids with bad teeth, so I’m not afraid to put $5k away each year. Between deductibles, co-pays, and prescriptions alone I can get in the realm of that limit. The use-it-or-lose-it concept is silly. Guess I’ll get a prescription for tylenol from my doc if I have a remaining balance, go shopping @ costco, then flip it on eBay.

  32. Anonymous

    Yes, as Michelle says, there’s a great deal of *misinformation* here. OTC medicines ARE STILL COVERED. All you need is a prescription for them. Also, all other items ARE STILL COVERED, e.g. co-pays, eyeglasses, dentistry, etc.

    While there was no cap in the past, many companies did cap their FSA plans between $2,000 to $5,000. Now there is a universal cap. The *average* FSA account accrued about $1,400–well under the new limit.

    Also note that these changes do not apply to Dependent Care Savings Accounts (aka child care/elder care). Those plans are not affected at all.

  33. Anonymous

    This is a tax increase on those who are unlucky enough to endure high health care costs. I’m sure if it were put to a referendum, there may have been some other options for raising taxes.

  34. Anonymous

    Your posting is actually inaccurate. OTC medications won’t be reimbursable under FSA accounts (without a doctor’s Rx). Other items such as contact lens solution, band-aids, etc. will continue to be allowed. You should check your facts before publishing information to the public.

  35. Anonymous

    Note that the OTC regulations will ALSO apply to HSAs and HRAs (Health Reimbursement Arrangements).

    Other than that, you got the facts right on Nickel! (I work for an FSA administrator).

  36. Anonymous

    Thanks Obama? What about thank you Bush for this 8 years worth of mess!!! You can’t expect President Obama to clean up this mess in 1 1/2 years that it took Bush 8 years to create, hummm????

  37. Anonymous

    Just to clarify to those that think no one is using >$2500, anyone that has a new baby, particularly near the beginning of the year, certainly uses the full amount. Weekly prenatal visits, delivery charges, hospital stay charges, frequent well visits, etc. That doesn’t even include any illnesses or if you have other children that happen to get sick!

    The OTC won’t impact us too much, but again, allergy and child medications do add up, particularly with young immune systems that still catch everything!!

  38. Anonymous

    From my records with my HSA account — the OTC portion is less than $100 of my HSA spending. The other $4k so far has been going towards deductibles & prescriptions.

    The OTC elimination is going to affect HSA accounts too next year — but it is such a tiny portion for me, I don’t really care.

  39. Anonymous

    Hm, my employer contributes about $9000 to my FSA a year, $4000 of which is used to pay for medical/dental/vision. The remaining $5000 is leftover for OTC/child care costs, which add up to a lot throughout the year. So basically I just lost half my FSA =(

  40. Anonymous

    The $2500.00 affects those of us who need to buy hearing aids or hearing aid batteries….These are very costly and are not covered by any insurance, because it is obviously not necessary for us to Hear.

  41. Anonymous

    OTC can start to add up when you have kids – especially when 2 out 3 (plus myself!) have allergies and living in one of the worst spots in the state for allergy sufferers! 🙁 But for a family of 5, we still only put away $350/year into the FSA – and that’s mostly for dental work (having 3 kids can really destroy your teeth!) and eyeglasses/contacts for either the hubby or the daughter. But it sure is nice to be able to use any remaining amount on OTC in years like this – where I haven’t spent much on copays/prescriptions/dental/etc, but I paid $50 on OTC lice treatment when there was an outbreak at school in March (can we all say…EWWWWWW!!).

  42. Anonymous

    Personally I’m hoping that someone figures out an end-around legislatively to circumvent many of these hideous measures before they’re in place.

    With the current group in charge, it’s all about how much they can extract from you without coming right out and saying it.

  43. Anonymous

    This seems like this shouldn’t be much of an impact. Are a lot of people out there really using >$2500 in FSA accounts? And are people really spending a lot of money on over the counter medicine? If you’re spending a lot on OTC then that in itself may be a problem. I mean really, how much OTC do you need??

  44. Anonymous

    Submitting for OTC stuff was always such a pain anyways. But neither my nor my spouse’s FSA ever got around to supporting that debit card system. Too bad all the work merchants and FSA administrators put into said “Inventory Information Approval System” will now go to waste.

    These changes won’t affect most people very much. Unfortunately those they do affect, are losing out big time.

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