It’s coming around to that time of year again when retirees
and employees with group health insurance have the opportunity (the burden?) of
choosing their healthcare insurance coverage for the coming calendar year.
For Medicare beneficiaries, it’s the usual drill: regular
Medicare or a Medicare Advantage (Part C) plan, a Medicare supplement policy, a
Part D/prescription drug plan. I won’t
elaborate on those choices now. But
everyone covered by Medicare owes it to himself and his wallet to evaluate the
available plans every year. What works
best and is the most cost-effective one year may not be the best option the
following year. Plans change. Health changes. Shop,
or get an independent agent to help you.
For those under a group plan and who are fortunate enough
to have a choice of plans or insurance companies, the same advice applies: shop
and compare. But for this group there is
one decision that should be easy. If the
employer offers a medical flexible spending account (FSA), sign up for it.
An FSA is an account that allows the employee to set aside
money for certain medical and dental expenses from his paycheck. The money is not taxed before it goes into
the account, and when it is spent on qualifying expenses it is not taxed upon
withdrawal. It’s literally tax-free
money.
The main objection to these accounts in the past came from
mostly healthy people who did not expect to incur many medical expenses
throughout the year. If they did not spend
the money that was set aside before the year’s end, the money was
forfeited. But thanks to the Coronavirus
Aid, Relief, and Economic Security Act (CARES), that should be less of a
concern now.
True, one must still consider carefully how much money to set
aside. Typically the money is deposited
from each paycheck throughout the year, with an annual limit of $2750 in
2020. And that money can still be
forfeited if not spent. But CARES
significantly expanded the definition of “qualifying expenses”. The young person who anticipates no “sick
visits” to the doctor, no prescription drug co-pays, and no dental expenses not
covered by dental insurance probably doesn’t want to put hundreds of dollars
into an FSA: but does that young man or woman ever buy over-the-counter antacid
or headache remedies? That’s covered
now. Adhesive bandages? Yes, covered.
Mileage to the dentist or doctor for a check-up? Yes.
Even feminine hygiene products are covered now. And these are permanent enhancements—in the
sense that they will remain after COVID departs, though Congress can always
change the rules again.
One distinct advantage that partially makes up for the
forfeiture clause is that FSA’s are pre-funded.
That is, if you incur an expense on, say, January 2 and haven’t
deposited a single cent into that year’s FSA fund, the full amount you
committed to contribute that year is available for your use. You don’t have to wait until the money is
actually deposited to be able to use it.
It’s advanced to you, essentially.
Another often overlooked advantage of the FSA is related to
that pre-funding. An employee can
forfeit unused funds at year’s end; but conversely if he were to leave the
employment of the company sponsoring the FSA and had used more money from the
pre-funded FSA than he had contributed, the company forfeits the
difference. Anyone contemplating
quitting his job needs to be aware of the balance in his FSA to plan
appropriately and at the very least not forfeit any money he has deposited.
Happy health insurance shopping.
Until next time,
Roger
“Be sure you have sound advice before making
plans.” Proverbs 20:18, CEV
