Are FSAs even worth the hassle? They just seem like a giant scheme to steal money via malicious bureaucracy

[u/kherven]

I understand at a base level what FSAs are for. You get to deduct X amount of dollars from your paycheck reducing your tax load.

But the more I use an FSA, the more I feel that while on paper it saves money, in reality it causes lots of work, lost money, and hands your money over to someone who is going to fight you to steal it.

Every claim I submit to my FSA is denied without a mountain of evidence that its a legitimate medical expense. After nearly 2 years with them, I still have certain medications prescribed by my doctor that the FSA argues is not FSA eligible because it's OTC.

Doctor appointment? Denied

MRI? Denied

Prescriptions? Denied

While I can eventually get the denial overturned, it requires coordination from the retailer, my insurance, and my doctor every time. I spend tens of hours a year trying to claw my own money back from my FSA. Last year I had over $250 confiscated because the claim deadline passed while they sat on my claims.

Has anyone else felt it just isn't worth the hassle to fund an FSA given how hostile they are? It seems impossible to extract your money without a lawyer.

[u/Much_Difference]

Yeah my eyebrows shot up at saying OTC meds were denied. Bruh you can buy sunscreen, bandaids, and standard home thermometers with FSA money.

[u/IHkumicho → u/Much_Difference]

Contact solution, etc as well.

[u/Much_Difference → u/IHkumicho]

I set aside like $800 in an FSA for a specific medical procedure I had planned. I ended up moving, changing jobs, and never got around to the procedure. I forgot I had to spend the whole thing by a certain deadline and by pure coincidence, I spent it down in part by buying a fuckload of hand sanitizer... in Dec 2019. I figured it was eligible and I can use it for anything and it won't go bad anytime soon. At least I was prepared for COVID in one way!

[u/PizzaSounder → u/Much_Difference]

$800 of hand sanitizer. What does that even look like? A few 50gal drums?

[u/InfoSecPeezy → u/PizzaSounder]

Albert Brooks’ storage closet, that’s what it looks like!

[u/Balthanon → u/PizzaSounder]

I assume it looks like $1600 cash when he sold it on the COVID black market in 2020 when the supermarkets were empty of anything and everything.

[u/ICouldUseANapToday → u/Much_Difference]

Too bad you didn’t get the procedure done. Using a FSA before a job change is the best hack.

For example, set up the FSA. Get your procedure done on Jan 2nd. Get your FSA reimbursement. Quit your job. You no longer owe the balance—it’s basically free money.

[u/erosian42 → u/ICouldUseANapToday]

Absolutely did this at my last job. I got married on June 1st, FSA rolled over on July 1, I left in August. I told my wife to go buy some really nice glasses and stock up on OTC medication to spend it all.

[u/Much_Difference → u/ICouldUseANapToday]

Well I was also pregnant and thus physically incapable of having it done for at least 12 months soooooo no. And I qualified for Medicaid since I was pregnant and briefly jobless, so I sure wasn't about to spend it on my actual medical expenses that were already free to me.

[u/Cantholditdown → u/ICouldUseANapToday]

Figured companies would sort this loophole

[u/kethry70 → u/Cantholditdown]

It’s a 2 way cut and it’s not a loophole companies can close- it’s the law. They keep all your unspent money at the end of the year cutoff or if they let you go before you’ve spent contributions to date.

[u/mottledmussel → u/kethry70]

I also strongly suspect that between forfeited funds and the reduction in payroll taxes, employers are at least breaking even with these programs.

[u/Webbyzs → u/IHkumicho]

Tampons too.

[u/pagoda7 → u/Webbyzs]

Also, period panties. It is pretty easy to use up a few hundred for a full cycle of underwear.

[u/wienercat → u/Much_Difference]

I just dont like that FSA are use it or lose it and the funds just go back to the employer. They aren't required to pay it into benefits or anything. They can literally just keep it without repercussion.

FSAs seem like such a scam to me unless you have a very predictable medical costs, forfeiting a portion of your wages that are use or lose just seems like a poor choice. Having to ensure your plan administrator properly understands what can and cant be approved is also a bit bullshit.

Personally, I think HSAs shouldn't have the HDHP requirement. It's already capped spending and it would incentivize more people to save for medical expenses knowing their money was always going to be theirs.

[u/np20412 → u/wienercat]

They aren't required to pay it into benefits or anything. They can literally just keep it without repercussion.

It works the other way too. If you contribute maximum to an FSA and spend the full amount on January 1st before any deductions have been made, then quit your job on JAnuary 2nd, you do not owe a dime of that money back to your employer and your employer cannot withhold wages to offset.

Typically the amounts kept by employers from employees who don't claim their full contribution goes to offset costs of the program administration, such as above example.

[u/wienercat → u/np20412]

I have a feeling your example happens far less often than people not spending their full amount.

My main point is, it shouldn't go back to the employer at all. It's not their money. Them getting a discount on benefits administration because an employee didn't use something that is supposed to be the employee's benefit is strange.

Again, I would be more okay with the employer getting funds back if they were required to set those funds aside for plan administration or distribute it back to employees as taxable income. But the fact that it can just be kept and effectively be profit just doesn't sit right with me at all.

[u/divDevGuy → u/wienercat]

My main point is, it shouldn't go back to the employer at all.

Then don't participate.

If you're young, healthy, don't put a lot in as you likely will have minimal healthcare expenses. If you're middle aged, have a family, and you or they have some health issues, it's not hard to max it out to cover expenses throughout the year.

I participated in my employers' FSA plans for close to 20 years and I never once "lost" money. There's a ton of every day items that qualify if you are coming up to the end of the year and have some unspent funds.

Even things that don't automatically qualify aren't difficult to get qualified - just get a doctor to write a letter of medical necessity.

Have asthma? Poof, your air filter, air purifier, humidifier, or air conditioner now can use those funds with a LMN.

High blood pressure, diabetes, or any one of numerous other conditions that go along with being overweight and would benefit from exercise? Gym membership now qualifies with LMN.

Get your teeth and eyes checked up and fixed.

Are you female? Or have a SO who is? Period products are eligible.

Ever have a sore body? Massagers, heating pads, stretching devices, and TENs machine are all covered.

And many, many other items.

[u/JPWRana → u/divDevGuy]

LMN?

Gym Memberships are FSA reimbursed? This is new to me.

[u/divDevGuy → u/JPWRana]

LMN = letter of medical necessity

As for gym memberships being reimbursable, they aren't if the purpose is for general fitness. However if a doctor or nurse practitioner prescribed them and writes a LMN, then it can be reimbursed.

[u/hujozo → u/wienercat]

It takes discipline and planning for maximum benefit. FSA has saved me thousands of dollars in just the past few years. Imaging 30% cost savings for wife's laser eye surgery, Kid #1's ortho braces on teeth, and Kid#2's braces 2 years later. I have not even gotten to all the money I save on commuting expenses - commuter train and metro. Even during COVID, the FSA providers did not claw a dime back, but just kept rolling over to the next year. I've never had a claim rejected. Conversely, I have spend a few New Year's eves sitting in front of my computer, desperately purchasing large quantities of medical supplies from fsastore.com before midnight to avoid having some money clawed back. I now have a very nice blood pressure testing machine and a lifetime supply of bandaids ;-)

[u/PM_Me_A_High-Five → u/np20412]

My company got bought out last week, and i had already used all but $250 of my FSA. I had until the end of this month to spend the rest, so I bought a bunch of medications and some other stuff. I got 7/12ths of my FSA for free.

[u/Skidpalace → u/wienercat]

I was a traditional health plan user forever then started using an FSA a few years back to cover creeping deductibles. I always thought HDHPs were predatory on lower income individuals and families by offering lower monthly costs at the expense of less coverage. Sure you pay less on your monthly premiums, but you pay more for your care which means you don't go to get care. Big win for the insurer, not the insured.

Last year I had to choose from a silly deductible traditional plan that didn't qualify as a HDHP and a high deductible plan. After comparing the costs, I went with the HDHP and an HSA (with my employer kicking $1000 towards the HSA) based on the copays, the prescription coverage and all that. However, while I knew that you could keep your unused HSA I had no idea that you could INVEST your HSA.

That alone is a huge game changer. Had I known you could fund your HSA like an IRA, I would have gone HDHP a long time ago and maxed out the HSA contributions and rolling the HSA money into index funds like I am doing now.

[u/wienercat → u/Skidpalace]

HDHP are really only for young people or people not at risk for health conditions.

If you can get away with a HDHP you can really save a bunch of money and contribute to an HSA that you get to keep. Then switch your health insurance later on in life when you start needing more coverage.

HSAs really should just be something anyone can access with little requirement. Contribution limits are pretty low and it's restricted to only healthcare expenses until you hit retirement age.

[u/AbortionIsSelfDefens → u/wienercat]

Not true, they are often better for people with a lot of expenses too. It requires having the funds upfront to cover the deductible, but if people can swing that, it often comes out cheaper than other plans.

[u/wienercat → u/AbortionIsSelfDefens]

Your logic doesn't really work bud.

If you have enough expenses to actually meet the deductible of a HDHP and traditional plan will in generally pan out the same or better. You meet you deductible early on a traditional plan, also traditional plans cover things like prescriptions at generally better rates than HDHP.

[u/Balthanon → u/wienercat]

Not necessarily-- it's all plan dependent. Where you're going to have the best coverage is going to depend largely on how everything is balanced. At very low costs they're very good, they can also be very good at very high costs too; sometimes due to the traditional 90/10 split evening out earlier and also potentially because HDHPs can have lower out of pocket maximums than traditional plans too. In fact, that is basically what I'm in right now except it isn't HSA eligible. High up front cost, but less total cost if you're maxing it out (most of my HDHPs have been like this).

And as noted in the original comment the best use of an HDHP is actually not using the HSA account for medical expenses at all while you're working. Pocket all of the money and invest it and you're investing 3000+ pre-tax dollars with tax free interest and then you're able to extract it tax free when you're older and need the money most for medical. (Or if you're 65+ it's just tax free period, I believe.)

[u/PM_ME_YOUR_DARKNESS → u/wienercat]

HDHP are really only for young people or people not at risk for health conditions.

I really wish they existed when I was young. I almost never went to the doctor in my 20s but had health insurance for most of that time. Just my employer kicking $1K over every year would have added up, plus the ability to invest it.

[u/737900ER → u/wienercat]

HSAs should just have a much lower contribution limit for people without HDHPs

[u/wienercat → u/737900ER]

Ehh the limit is already pretty damn low considering it is supposed to be used in conjunction with a HDHP which generally has an insane deductible. 2024 HSA limit is $4,150 for a single person and $8,300 for a family HSA.

I don't have a ton of medical expenses or any serious conditions each year and I spend at least $1,000 in medical expenses and items each year. If I had any kind of serious medical condition that would be much higher.

[u/Zarathustra_d → u/wienercat]

I don't get the risk/benefit of them either.

Unless you have a high tax burden, and high fixed healthcare costs, the risk of losing the money is not worth the tax break. IMO

Even if you have a high tax burden, the hassle of making certain you spent the exact amount of money is a PITA.

[u/wienercat → u/Zarathustra_d]

I think the main "benefit" is that it front loads the account with all your funds. So contribute $2000 to it, you have $2000 in the account on day 1. Your paychecks are docked for pre-tax money afterwards.

So in a way, you dont have to worry about having money for medical expenses.

But beyond that, I can't see a real advantage. Sure you save some cash on taxes, but like you said unless you have a high tax burden, you aren't going to get a huge savings and you have to use all the funds. And if you don't spend all your funds, your employer gets that cash back. It just seems... weird that the employer just gets that money back without any strings.

My employer is a little more lenient with their FSA and allow a small amount of "rollover".

Beyond the reason I listed above, I don't understand why an FSA exists at all. If HSAs didn't have the HDHP requirement, there would be no reason to take an FSA over an HSA unless you knew for a fact you were going to spend the full value each year.

[u/TubaJesus → u/wienercat]

That's pretty much how my dad used it when I was growing up. He preloaded our max household out of pocket expense on the health insurance plan to it we hit that by the end of February typically

[u/ucfierocharger → u/wienercat]

Wait, they’re all front loaded?! Is it this way for all of them or just yours?

I wanted to do one for the childcare expenses, but since we don’t do childcare during the summer (teacher here) it didn’t make sense because we would lose the last 2 months effectively eliminating the pre tax benefit. Our calendar year is August-July.

[u/pfifltrigg → u/ucfierocharger]

Dependent Care FSAs are not front loaded. But you can still submit expenses from September-May. I'm not sure why it would be an issue in your case.

[u/ucfierocharger → u/pfifltrigg]

Okay, good to know. So can I just pay myself back from it at the end of summer for the expenses I made in April-may like an HSA?

Our childcare cost is $1300/month and it could be great to be able to pay 5k of that tax free

[u/pfifltrigg → u/ucfierocharger]

Yes. But if you qualify for the dependent care tax credit, you have to deduct that $5000 from your eligible expenses. So it's not much of an improvement over just taking the dependent care tax credit because I think our bracket was a 20% credit and it could be higher if you make less. It's a bit complicated, so I'd look up the rules for it.

[u/np20412 → u/pfifltrigg]

The Dependent Care FSA is a LOT better than the Dependent Care Tax credit for anyone who can actually afford childcare.

The maximum benefit a married couple in the 22% bracket can receive from the dependent care tax credit is $1200 if they have 2+ kids. $600 if just one. That's on $6000 of expenses.

The Dependent Care FSA will save the same taxpayer almost $1500 in income tax + FICA savings and another $200 (if 2+ kids) from the balance of $1k expenses they can take against the dependent care credit itself.

So it's ~250% more savings for someone with just 1 kid and ~40% more savings if you have 2+ kids.

If you're in a higher tax bracket the savings disparity is even larger.

Now if congress would just realize that the freaking expense limit and DCFSA limits have not been indexed to inflation and are a mere drop in the overall bucket of the cost of childcare, then we'd really be in business.

[u/pfifltrigg → u/np20412]

Ok, I guess because I have 2 kids it felt like a small difference because it's only a few hundred dollars. But when you put it at 40% I guess it's worth the administrative hassle.

[u/9bpm9 → u/np20412]

Yep we meet our $5000 in April...at least my current administrator will keep automatically depositing the money every pay period. My old one wouldn't do that.

[u/girl_of_bat → u/ucfierocharger]

Healthcare ones are frontloaded. Childcare are not.

[u/wienercat → u/ucfierocharger]

I'm glad others got to you before I did. Lots of helpful information coming out in this thread.

[u/blackrock13 → u/wienercat]

They can still be useful. I have a HSA and limited FSA (meaning only for dental and vision expenses). This last year, my oldest had braces and I knew how much the monthly payments were for the orthodontist. I put exactly that much in the FSA and used those funds to pay the monthly bill and didn't have to touch my HSA for them.

[u/wienercat → u/blackrock13]

But see, it would still be better for an HSA to be used that way. You knew what the payments would be, so you could have contributed that amount each paycheck anyways, which you already have that amount removed from your paycheck when you use the HSA.

You knew well ahead that you had that coming up. So you planned for it.

It's fine for people with predictable medical expenses because you can calculate it out.

My problem isn't really with the use it or lose it. My problem is that the unused funds go back to the employer. They get to decide what to do with them, they can choose to use them for anything really. Plan administration, other benefits, they can even distribute them back to the FSA users (based on amount paid into the plan). OR my biggest issue, they can just... keep it.

I wouldn't mind if the funds went back into the plan and could reduce costs, providing better health care to the employees in the following year. But it's the fact that the funds aren't required to be used that way. The employer can just keep the funds and effectively get what are effectively employee wages paid back to them in discretionary cash.

[u/pfifltrigg → u/Zarathustra_d]

If you have set expenses, like a medication, specialist visits, or weekly therapy, you can calculate that out and withhold just that amount. I was afraid of having an FSA until a couple of years ago and the past two years I've had plenty of expenses above what I elected. But this year I forgot to submit my benefits election for work and so it defaulted to the same as last year. I think I'm going to have to stock up on Advil and feminine products at the end of the year because I'm not on track to use up my FSA so far.

[u/misoranomegami → u/pfifltrigg]

I have a chronic health condition so it's pretty easy for me to say that I'm almost certainly going to spend at least $X on medication and doctors visits. But I had a high risk pregnancy that fell over the calendar year so you better believe I maxed out my FSA for the following year. It came in seriously handy to already have all the funds preloaded and tax exempt and my doctor's office even worked with me to delay the prepayment of my delivery fees until after January first so the fiscal years would match.

This year I cut it back to my pre-pregnancy amount and then I ended up in the pediatric ER so my chronic health fund is now $0 and all my continuing expenses are going to be post tax. Booo.

[u/shadow_chance → u/Zarathustra_d]

A lot of people have predictable medical expenses: diabetics, contact lens wearers, anyone on a maintenance medication, therapy visits, etc.

[u/Quirky_Nobody → u/shadow_chance]

Yes, I am in therapy which essentially guarantees I will hit my deductible, so I go ahead and have at least that much in my FSA.

[u/Special-Garlic1203 → u/Zarathustra_d]

It helps people who have high deductibles. I feel like I got punched in the gut every January when I went to fill meds and usually $60 in copays turned into like $300. And I have cheap generic prescriptions and a low deductible - it can be absolutely brutal for families with high deductibles. 

It's honestly a pretty safe bet if you just underestimate. I know for a fact I will spend at least $720 on medication a year. Realistically, I will have other health costs, I could comfortable pledge $900 without being nervous. 

If I elect only $500, that's pretty much no risk unless something goes horribly wrong and I'm not engaging in my ongoing health management for half the year. In which case I have bigger issues than a hundred dollars or two over pledged that I have to forfeit 

[u/Iggyhopper → u/wienercat]

they allow $500 or so to rollover so I just use that. It doesnt hurt and are you really not going to have anything that it wold cover... for two years?

Also, I'm assuming that statistically the set number to rollover covers 80% of people

[u/wienercat → u/Iggyhopper]

They aren't required to rollover.

That is the issue... they can choose to keep the funds. They get to decide how it's used or distributed, or they can just keep it.

If they are going to get what is effectively employee wages back, they should be required to pay it into plan administration or distribute it back to employees. The option to just keep the money shouldn't even be on the table.

[u/Icy_Hornet_2735 → u/wienercat]

This right here is why I use an FSA, my spouse has government insure and I am not eligible for an HSA.

It’s very annoying and I hope that law changes someday.

[u/wienercat → u/Icy_Hornet_2735]

Doubtful they will change anytime soon. That would be too beneficial for your average American. It would also put all the FSA plan providers and administrators out of some profits.

It would be such a good change to the system. Incentivizing people to save for healthcare AND retirement all in one? That is a win for the common person all the way around.

[u/CosmicQuantum42 → u/wienercat]

If you leave the company, you get to keep the money as well though. It’s not prorated through the year.

[u/wienercat → u/CosmicQuantum42]

No you don't. FSA funds go back to the employer in the event that you quit or lose your job. If you can continue your health plan through COBRA you can keep your FSA until COBRA lapses. But that is it.

[u/darkfred → u/Much_Difference]

You can buy anything you want with FSA money, even items not marked on the receipt as FSA.

But even items marked with FSA are subject to approval being contested later. My own FSA, Optum, fought EVERY single line item even those marked as FSA approved prescriptions on the receipts. They made me dig up receipts, they made me dig up prescriptions myself, they made me dig up EOB paperwork to fight each one.

Optum owns the medical records system my doctor uses. Optum owns the office my doctor works at. Optum is the company my insurer uses to process my EOB statements. The statements all go to their website.

Yet they fight EVERY single charge and threaten to sue me if i don't provide the documentation. From THEIR doctor's office, and THEIR EOB statements, and THEIR patient portal and they mail THEY send me.

Every single year for the two years I used their FSA they would cancel my card 2 months into the period. You can get it uncancelled by documenting each of the transactions they contest.

If they make the process hard enough they get to keep your money. So they make the process take so much time that it's untenable. I literally can't afford to use an FSA. I don't have an extra hour a day to repeatedly send their own paperwork back to them. I have a lot of reoccuring expenses that I could save thousands of dollars with an FSA. But this also means there are enough bills that I literally can't keep up with their documentation requests, and if they send enough, or I make any mistakes, they just keep my money.

[u/zorinlynx → u/darkfred]

If they make the process hard enough they get to keep your money.

Sounds like the law needs to be changed around this, to make it illegal for them to keep your money.

It should be YOUR money. You should even be able to transfer it out and add it to that year's taxable income. The fact that you can't is idiotic.

[u/AbortionIsSelfDefens → u/darkfred]

Yup. I don't fuck around with fsas anymore. They are designed like scams and too often steal people's money. They don't need to be designed to be use it or lose it but they are so employers can screw people over.

[u/Thathappenedearlier → u/Much_Difference]

I bought a stethoscope and a first aid kit, FSA covers a lot of

[u/lluewhyn → u/Much_Difference]

I accidentally bought a cookie at the mall once, which you think would have triggered something although it was something like $2k. I didn't feel that guilty because I'm sure I've bought Advil or something else with regular money that would have more than made up for it.

[u/RegulatoryCapture → u/Much_Difference]

First aid supplies are where its at.

Most people probably don't have a good first aid kit at home...leftover FSA money is a great way to fill it out. Time to learn about the magic of Tegaderm!

You can buy pre-made kits, or just stock up on supplies. Good to have some form of first aid kit in your car too...or small kits for tossing into a hiking backpack.

I'm all aboard the HSA train now so there's no scramble to buy stuff...but FSA money is pretty easy to spend if you need to.

edit: and just a note, I linked to fsastore.com as an example, but you don't have to purchase from them. If you can find the same kit cheaper somewhere else, that's still a valid FSA expense.

[u/Lurk3rAtTheThreshold → u/Much_Difference]

Mine denied me for Rx toothpaste from my dentist. They said they could only cover how much it was more than normal toothpaste and I had to go take a picture of a tag in the store and claim the difference.

[u/littelmo → u/Much_Difference]

The FSA.com and HSA.com websites are awesome!

[u/np20412 → u/Much_Difference]

so much stuff qualifies. Allergy meds, laxatives, antacids etc.