Use it or lose it time for flex accounts

Stock your medicine cabinet

INDIANAPOLIS -- Stocking up on aspirin before the night is over will do more than blunt a New Year's Day hangover for many people.

Purchases like that also help employees who hold health Flexible Spending Accounts whittle their balances before 2008 ends. In many cases, money that isn't used is forfeited.

Benefits experts say there are several last-minute ways to use leftover money in these accounts. FSAs give consumers possible tax savings by letting them use money from payroll deductions on certain health-related expenses.

People with accounts that must be used by Dec. 31 have no time to schedule a medical procedure. Even squeezing in an eye exam may prove impossible, so it's time to start thinking about small items.

Band-Aids, cough syrup, laxatives and even condoms are all eligible for flex spending dollars.

"Over the counter [medicine] tends to be the best way to use up those dollars at year-end that are just kind of lingering out there," said Kelsey Horne, vice president of Taxsaver Plan, a Dallas company that administers FSAs for about 300 large employers.

She said a family of four usually spends about $200 each year on over-the-counter items that can be reimbursed through an FSA.

Before you go on a shopping spree, make sure that you've submitted all claims for eligible procedures done that year. Remember to include proper documentation.

Many people know prescription eye glasses are covered, but few realize FSAs also pay for nonprescription reading glasses, said Tracy Watts, a senior health care consultant with the human resources firm Mercer.

Transportation expenses for a medical visit also can be covered. That includes parking fees, a bus ticket or miles traveled in your car.

Many people also fail to use their FSA accounts on dental braces, Horne said. She noted that the costs are covered by FSAs because they fix a medical problem and are more than just cosmetic.

The Internal Revenue Service Web site lists examples of expenses covered by FSAs. Among the items are Braille books and wages paid for nursing services.

But account holders should always check with their employer because a company can limit reimbursable expenses permitted by its plan, Watts said.

People also should avoid wiping out the drug store's antacid supply just to drain their FSA balance. Plan administrators may reject claims where they think stockpiling has happened.

Grace period popular

FSA users also should know their deadlines. Many plans give account holders anywhere from 30 to 90 days after the end of the year to submit their receipts from that year.

The IRS also allows a separate grace period of up to two and a half months to incur expenses tied to the previous year. That means that for some plans, people will have until March 15 to use their 2008 account balances.

This grace period is becoming popular, said Robin Downey, head of product development and consumer funds services for the managed care company Aetna. Only 30 percent of Aetna's clients offered the grace period this year, but Downey expects that to double next year.

Downey said the extra time should help people overcome their skepticism about the accounts.

"If we can give you a little grace period to help you use those dollars better, then you'll be more encouraged to put money into the FSA because that was the problem," she said.

If people don't use their account money before their plan's deadline, employers must spend it on a benefit covered by the Employee Retirement Income Security Act. That means it can offset administrative fees for the FSA or for another health plan, Horne said.

Still FSA users are best served by spending every dollar. What's left behind could be significant. Aetna estimates that about 14 percent of its FSA users leave an average of $723 each year.

IRS link for medical and dental expenses:

www.irs.gov/pub/ irs-pdf/p502.pdf