Those with flexible spending dollars have until month’s end to spend them
WILLMAR — When Family Eye Center put together its employee schedule for December, general manager Val Selness made sure to plan for enough staff on hand at the end of the year.
Owners of flexible spending accounts have until Dec. 31 to use the money or lose it — and this often means a last-minute surge in spending on medical care, dental care, eyeglasses and other eligible health-related expenses.
“Typically those last couple of weeks of December, even though it’s Christmas, tend to be busy,” said Selness.
“They want to make sure they do use those dollars up.”
Flexible spending accounts allow workers to set aside pre-tax dollars each year to pay for qualified medical expenses.
(The accounts also allow a pre-tax set-aside for qualified child care expenses.)
But there’s a catch: If workers don’t use all the money before the end of the year — or, in the case of employers who allow a grace period, by the extended deadline, typically March 15 — they forfeit whatever remains in their account.
Overestimating how much to set aside each year for eligible medical expenses is one of the more common problems that workers encounter. The 2012 Aflac WorkForces Report found that only about 16 percent of U.S. employees with a flexible spending account contribute the right amount.
And according to the Employers Council on Flexible Compensation, of those who end up forfeiting unspent dollars, about 20 percent leave more than $500 on the table. The average forfeit is $100.
This year there’s an extra incentive for flex account owners to use it all. Starting Jan. 1, a $2,500 limit per person will now apply for qualified medical expenses. Previously there was no cap, although most employers set limits that ranged, on average, from $2,000 to $5,000.
Medical, eye and dental providers are braced for what is typically an increase in end-of-the-year business.
“We do see that,” said Donna Sparks of Dr. Kevin Hallstrom’s dental practice in Willmar.
Many people tend to be cautious earlier in the year with their flexible spending “in case they have an emergency,” she said. “You don’t want it all gone. It is hard sometimes to gauge what you’re going to use or what you’re going to need.”
But by December they’re less likely to defer care, especially if they have unspent money in their flex account, she said. “We try to work people in if they do have that, because we don’t want them to lose it either.”
Consumers seem to have become more savvy about accurately estimating their flexible spending amounts each year, but overestimating and underestimating are still fairly common, said Dr. Brad Backhaus of Pearle Vision in Willmar. “People can still misjudge,” he said.
In recent years he has seen more customers tapping their flexible spending account in the fall for an eye exam or new glasses, but many still wait until December, he said. “We see tons of people then.”
Patient volume at Rice Memorial Hospital has been up this month, said Wendy Ulferts, chief nursing officer. “We have had a very busy month so far.”
Some of it is a normal seasonal increase for which respiratory illnesses are at least partly responsible, “but we also see a lot of people coming in wanting surgeries done and tests done before the end of the year,” she said.
Part of the demand may also be driven by individuals who have met their health insurance deductible and copayment for the year.
Critics of flexible spending accounts say they can encourage unnecessary medical spending at the end of the year by consumers who don’t want to forfeit their money.
The tax-free employee benefit program has seen some restrictions in recent years. Starting in 2011, over-the-counter medications, except insulin, have been excluded unless there’s a prescription for them. The per-person cap that goes into effect Jan. 1 is part of the health care reform act and will be indexed to inflation in future years.
But if overestimation of how much to set aside to defray qualified medical expenses during the year is an issue, so is underestimation.
The Aflac WorkForces Report, which included a survey of more than 6,100 workers, found that six out of 10 didn’t have a financial plan for dealing with the unexpected, and more than half said they would have to dip into their savings account to handle unplanned out-of-pocket medical expenses.
Other surveys have found that many flex account owners spend down the entire amount on deductibles, co-payments and other out-of-pocket expenses long before the end of the year.
As owners of flexible spending accounts prepare to elect into their employer’s plan for the coming year, Family Eye Center has been receiving phone calls inquiring about the practice’s prices in 2013, Selness said. “People do prepare for that.”
Providers also are seeing careful and deliberate decision-making about how best to use their pre-tax dollars on qualified medical expenses, she said. “People aren’t flexing for a fun pair of glasses.”