Flexible spending accounts (FSAs) and health savings accounts (HSAs) let employees tuck away part of their paycheck before taxes to spend on eligible medical expenses, like doctor’s office co-pays, devices like asthma inhalers, or procedures like knee replacement surgeries. With the coronavirus running rampant, the government has relaxed some of its rules on how that money can be spent.
The change comes as many patients under stay-at-home orders have had to delay costly procedures they’d planned, leaving their health-related spending accounts unexpectedly flush. Health savings account administrator HSA Bank says there’s been a drop in HSA card spending. For the last two weeks of March 2020 versus the last two of March 2019, for example, HSA card spending dropped by 22 percent.
“We believe this is due to COVID-19-related delays and behavioral changes,” says Kevin Robertson, the company’s chief revenue officer, “such as postponing or canceling elective surgeries, regular doctor and dental checkups and dental visits, and minimizing visits to the pharmacy and other point-of-sale locations.” The drops may mean significant demand is building up, and spending will increase in late summer and beyond.
But even as doctors’ offices reopen, patients are likely to see delays in scheduling appointments and procedures, making it difficult for some to spend all of the pre-tax money they diligently set aside.
“When we open up, everyone will rush to make appointments, and doctors only have so many hours in a day to work,” says Paul Fronstin, director of health research at the Employee Benefit Research Institute. “That may mean people don’t get to use their money this year because they may not be able to get an appointment until next year.”
For health savings accounts, it’s less of a problem because the money in an HSA account rolls over into the following year. But with flexible spending accounts, or FSAs, it’s typically “use it or lose it.” That means if you don’t spend the money before your plan year expires, you lose the money.
Some employers who offer an FSA plan allow for a grace period, where employees can use the money they’ve set aside for a few months after the plan year expires. Others let employees roll over a portion of their money into the next year. (Employers can’t do both.) But many employers don’t make any allowances at all, and the funds simply expire at the end of the plan year, which may or may not line up with the calendar year.
The government recently took a small step that will help patients manage their health-related spending accounts during the pandemic: The IRS released guidance saying employees with plans or grace periods ending between April 1 to July 14 now have until July 15 to incur reimbursable expenses. Experts say both employers and the government could extend even more help to employees.
“Patients should pay attention,” says Robertson. “Things seem to be changing by the week or the month. I would expect additional changes to come through, though I don’t know exactly what they’ll be.”
What’s changed with how you can use FSA or HSA money?
There are two main changes under the CARES act.
Firstly, people with FSAs or HSAs no longer need a prescription from their doctor to use their funds for over-the-counter products like pain relievers or allergy and cold medicines. The rule is retroactive to January 1, 2020. Those with FSAs can submit receipts from OTC purchases from January until now for reimbursement, while those with HSAs can reimburse themselves for OTC products they bought earlier this year.
Back in 2009/2010, the Affordable Care Act made prescriptions a requirement for any OTC medications purchased using FSA or HSA money. Roy Ramthun, founder and president of HSA Consulting Services, led the Treasury Department’s implementation of HSAs after they were first created in 2003; he says changing this rule ends the unnecessary step of having patients go to their doctor for prescriptions for Tylenol or Claritin.
And the change will be permanent, Ramthun adds, urging patients to save receipts. “You can always be audited.” Keep hard copies of receipts or scan them and store everything online in case you need to prove that you’ve spent the money on eligible expenses.
Secondly, patients can now also use FSA and HSA money on feminine hygiene and menstrual products, including pads, tampons, panty liners and menstrual cups.
“For years, women’s groups have argued it’s a cost women can’t avoid, and one they incur from teenage years well into adulthood,” Ramthun says. “Now that the rule has been changed, I really don’t think that genie goes back in the bottle.”
What changes might companies make?
With many employees now potentially not able to use all their money in the allotted time period, companies who don’t have a grace period or rollover for their FSA plan might consider adding one, says Robertson. Employers have total discretion over the choice to give employees a grace period or the ability to roll over funds.
“You’ve planned for certain expenses you’re just not going to incur and could be in a situation where you end up with unspent dollars,” he says. “Absolutely it’s something employers should at least consider.”
The typical grace period lasts for two and a half months after the end of the plan year. So if your plan ends in December, you’d have until mid-March to incur covered expenses. Employers that use rollovers can let employees carry over up to $500 into the next year to use on eligible health expenses.
Currently, a little more than half of FSA plans allow for one of these options, and since its authorization in 2013, the rollover option has become more common than grace periods, says Robertson.
“I think you may see some employers change their plan in the middle of the year to help people not lose their money,” says Ramthun. “But it’s up to the employer to make that decision.”
What could the government do to help?
Lobbying groups have pushed, and continue to push for, the government to let employees roll over more than the current limit of $500, says Sheridan. Some believe employees should be able to roll over the full amount they’ve contributed, if they need to. Currently employees are allowed to contribute up to $2,750 to an FSA.
Ramthun says the government could indeed decide to adjust the $500, possibly raising it to $750 or $1,000, just for 2020. “But I wouldn’t expect that to go on and become permanent policy,” he says.
The government could also decide to let employees make a one-time adjustment to their FSA, perhaps as part of a subsequent federal stimulus package.
Typically, when you pick an amount to contribute at the start of your plan, it can’t be changed — unless you have a life event like getting married or having a kid — and the money is periodically pulled from your paycheck. With a one-time adjustment, an employee could decide to stop contributing midway during the plan year.
What else should you keep in mind?
FSAs often ask employees for receipts to prove they’ve spent their funds on eligible items. That hasn’t stopped because of the pandemic. If an FSA plan lets employees spend money on ineligible expenses, they risk getting shut down by the IRS.
Some patients who’ve had to track down receipts or get prescriptions to prove a charge was eligible have had trouble because their doctors’ offices are busy caring for COVID patients. That can be a problem because some plans will suspend your debit card if you don’t give them the paperwork they need within a certain number of days.
Many FSAs, however, will open up your card for 24 hours if you need to use it while you’re tracking down receipts. If that’s the case, call your plan and your card should be activated again that same day.