What is a FSA? Health Insurance Explained

by Zencare team

With so many different terms floating around in the health insurance industry, it can be confusing to understand what a FSA is and why you might want one. We’ve made it easy for you to learn about FSAs and how they might impact how much you pay for therapy.

What is a FSA?

A FSA is a Flexible Spending Account (also sometimes called a Flexible Spending Arrangement). A FSA is a savings account provided by your employer and is filled by a predetermined amount from your paycheck each pay period – so, for example, you could ask to put $150 each paycheck into your FSA. Your employer then takes out this amount before they apply taxes, which means that you are not taxed on what you put into your FSA. This potentially saves you the money you would have paid in taxes!

You can use the money in your FSA to pay for general out-of-pocket health costs such as copays, deductibles, prescriptions, or medical devices. This is helpful when it comes to therapy because you’ll be able to use your FSA money to pay for per-session costs such as copays - making therapy more affordable and accessible.

FSAs have a limit of $2750 in 2020, meaning that you cannot contribute more than this amount. However, if you have a partner or children, this amount increases.

How do I know if I’m eligible for a FSA?

In order to start a FSA, you will need to enroll in one through your employer either when you begin your position or during the open enrollment period (which is generally in the late fall). Ask your Human Resources department contact whether or not your employer has this benefit, and if they do, what the steps are to enroll.

What are the benefits of having a FSA?

Having a FSA is very helpful for some people who routinely have out-of-pocket costs. Here are a few reasons having a FSA is beneficial:

  • Save the money you would have spent on taxes. By taking money out of your paycheck before taxes, you will not only fund your FSA but you will save the money you would have spent on taxes.
  • Employers might contribute. Depending on where you work and what’s included in your benefits package, sometimes your employer will match your FSA contributions. This promotes healthy living and makes healthcare more accessible!
  • Use your FSA to cover copays, deductibles, prescriptions. Your FSA is designed to pay for your out-of-pocket costs - which means you can use this money to pay for your appointment costs.
  • Can carry over $500 to the next year. If you don’t use your entire FSA account within the year, your employer might let you carry over up to $500 to the next year.

What are the downsides of having a FSA?

There are limitations of having a FSA as well, which means that they aren’t for everyone. Here are a few downsides of FSAs:

  • Limit of $2750 per year. You cannot exceed this amount, meaning that the amount of money you save on your taxes is also limited.
  • Use it or lose it. You must use your FSA money within the year, otherwise you might lose that money. While many employers offer a grace period of 2 ½ months to spend the remaining funds or a rollover, however if you don’t have enough spending, you will lose out on the money you saved.
  • It takes effort. In order to use your FSA money, you first pay out-of-pocket and then submit a request for reimbursement to your FSA provider. This means that there are administration and organization efforts needed and you will have to keep track of your spending.
  • Won’t pay for premiums. Unfortunately, you cannot use your FSA to pay for premiums, meaning you will have to continue to pay for your monthly insurance fees with your taxed dollars.
  • Can’t take the account with you. Because these accounts are tied to your employer, if you leave your job or take a new job, you will not be able to migrate over your FSAs - you’re at risk of losing any money you have in your account.

What should I keep in mind when setting up my FSA?

Enrolling in a FSA is a big decision, so here are a few things to keep in mind when considering whether or not FSAs are for you:

  • How much you think you’ll spend. In looking at the year ahead of you, consider what expenses you might have. If you’re starting therapy, you may have a weekly copay. If you need expensive prescriptions, think about how much they will cost you each year. Use this information to estimate how much money you should have in your FSA and how much out of each paycheck you should set aside.
  • If you mind the administrative effort it will take. If you don’t mind going through the reimbursement process, then a FSA will be a comfortable task for you. However, if administrative paperwork processes cause anxiety for you, weigh this significant component against the benefits.
  • If you plan on making any career moves in the next year. Because you cannot take your FSA with you if you leave your employer, plan ahead if you think you might take a different job within the year.

Overall, FSAs can be helpful and save you money while also empowering you to spend your money on healthcare costs (like therapy!). As you search for high-quality therapists in your area, consider using your FSA money as a way to make it easier to begin working towards your emotional goals.