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Flexible spending account (FSA)

Healthcare FSAs help an employee reduce their healthcare costs and make budgeting easier. They contribute pre-tax money to the account and then draw on the funds during the plan year for qualified expenses that their health plan may not cover, like doctor's bills, prescriptions, dental care, and vision care.

Internal Revenue Service (IRS) regulations state that FSA funds cannot be carried over from year to year.

Key features

Employees who set up an FSA take money out of their paycheck before taxes, then draw on the funds during the plan year to pay for qualified expenses.

With an FSA, employees typically can only use the money for expenses during the current plan year. Some employers may offer a grace period, which allows extended access to FSA funds.

As an employer, you determine what types of expenses are qualified within guidelines defined by the IRS. Most plans cover:

  • Medical expenses like deductibles and copayments
  • Out-of-pocket prescription costs
  • Dental expenses
  • Vision services

However, your company may not include all of the categories above. In addition, employees can't use the money for experimental treatments, cosmetic procedures, or insurance premiums.

Employees have access to the full annual amount of their healthcare FSA—even money that hasn't been deducted from their paycheck yet—on the first day of the plan year.

You have the option to offer a separate FSA for qualified dependent care expenses, such as childcare or adult day care.

Please note: over-the-counter (OTC) medications such as pain relievers, cough syrup, and allergy medicines require a prescription to be eligible for reimbursement from an FSA or personal care account (PCA). The HumanaAccess® Visa Debit Card cannot be used to purchase OTC medications.

Example of how FSAs work

Last year, Laura made $28,000 and put $1,500 in her healthcare FSA. The example below shows how much she saved by using the pre-tax money for qualified health expenses. Without an FSA, she would have paid for these expenses from her take-home pay, which she paid taxes on.

View a sample list of qualified FSA expenses, according to the IRS:

Sample FSA qualified expenses (329 KB)

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