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The end of the year is fast approaching, and the flexible savings accounts (FSAs) for many workers are about to expire. Those healthcare funds have a “use it or lose it” rule, meaning employees who fail to deplete their contributions before a specific deadline—often the end of the calendar year—will lose the money they put in.
Between 44% and 48% of workers with FSA funds forfeited at least part of their contributions between 2019 and 2020, according to an analysis from the Employee Benefits Research Institute (EBRI). That accounts for an average of $339 to $408 lost per employee annually. And U.S. FSA forfeitures total at least $3 billion per year, according to an analysis from Money published last year.
The end-of-year deadline for many FSA plans has been known to send people scrambling to spend as much as $2,000 on New Year’s Eve to avoid losing funds. But even then, the expense process can be cumbersome, as workers have to remember to save their receipts and then take the time to submit a request for each expense.
“Today’s fast-paced life is the biggest culprit in workers forgetting to track and use FSA dollars before the deadlines,” says Ruth Hunt, principal for engagement and communication at management consulting firm Gallagher. Workers may engage in informative sessions about FSAs during open enrollment earlier in the year, but “by the end of the year, especially calendar years, it’s easy to simply forget where the account stands. The calendar page turns too quickly,” she says.
As workers continue to feel the burden of inflation and higher living costs, using up their FSA money could help ease some financial strains. According to Gallagher’s upcoming Buck’s 2024 Wellbeing and Voluntary Benefits survey, only 66% of employees polled feel financially healthy, and 92% wanted more resources to support their financial well-being.
But employers can do several things to help employees fully use their FSA funds. One is adopting a carry-over or grace period policy, both of which offer an extension on fund deadlines, though carry-over provisions only allow a certain amount to remain after the deadline.
The most important tool employers can leverage, however, is a multi-pronged communication and engagement strategy, says Sara Taylor, senior director of employee spending accounts at Willis Towers Watson. This messaging should remind employees of spending or expense deadlines, any use-it-or-lose-it provisions, and what purchases qualify as an FSA expense, such as medical copays, dental visits, or prescription glasses. The federal CARES Act expanded the list of qualified medical expenses in 2020, meaning products including menstrual care items, over-the-counter medications, and sunscreen are FSA eligible. Some online retailers, such as The FSA Store, also sell FSA-eligible products, making it easier for account holders to find qualified items.
When it comes to successful communication, companies can send general announcements to their entire employee base, and work with their benefits administrator to send targeted missives to employees with remaining FSA balances. It is also important to explain the difference between FSAs, health savings accounts, and health reimbursement arrangements. For example, HSA funds don’t expire.
“Your employees typically don’t have this all down like a benefits expert does,” says Taylor. “They need help to understand this, they need you as an employer to remind them about how this works, deadlines, what they can use this money on so that they’re realizing the value of the benefits provided to them.”
Paige McGlauflin
[email protected]
@paidion
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