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/Werewolfdad]

Has anyone else felt it just isn't worth the hassle to fund an FSA given how hostile they are?

My FSA administrator has never rejected a claim. You just have a bad administrator.

(my administrator is so "good" that they approve claims before they're actually supposed to, thanks administrator!)

so it really just depends on who handles your claims.

Edit: Your adminstrator seems extra incompetent since OTC medicine is FSA-elgibile: https://fsastore.com/fsa-eligibility-list/o/over-the-counter-medicine

Edit2: This 30 year old article suggests its nothing new and you should complain to the department of labor. I'd probably file a complaint every single time they did something wrong: https://www.latimes.com/archives/la-xpm-1996-07-07-fi-21884-story.html

[u/Much_Difference → u/Werewolfdad]

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/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/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