What is an FSA is and how can you use it to save money? This post will break down what you need to know to make an FSA work for you.
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Last year I found out I needed quite a bit of dental work. So, in order to save money, I decided to increase my FSA contribution at work.
If you don’t know what an FSA is or how it works let me back up and give you the 411.
What is an FSA?
An FSA (Flexible Spending Account) works by allowing you to pay for qualified out-of-pocket health care expenses pre-tax. This saves you money (your marginal tax rate) since you’re using pretax dollars.
If your work offers an FSA, you will opt-in to it during open enrollment. Then, they will take money out of your check every month that will go into your FSA. The cool thing is that they will give you all the money you opt-in to at the beginning of the year. For example, if you are going to put $1,200 toward an FSA, you will get $100 taken from your check (pretax) each month. However, you will have access to all $1,200 at the beginning of the year.
What’s the catch?
There is a slight catch with FSAs. Basically, you have to use all the money within 15 months (March 31 of the following year) or you lose it.
Other fun facts to be aware of:
As I mentioned before, you get the money upfront at the beginning of the year. If you leave your employer before you’ve had time for all the money to get deducted out of your paycheck, you don’t owe what would’ve been taken out of your paycheck back to them. Pretty sweet, right?
Back to my FSA story…
Now that you know a little more about FSAs, back to my story (because there are a few financial lessons here)… So like I said, I increased my contribution to cover all of the dental work with pretax dollars. I also planed to pay for the copays for doctor’s appointments for me and my son as well as a new pair of prescription glasses (check out all the expenses that are eligible under an FSA here).
Rather than using my FSA debit card, I decided to use a new credit card to get points. That large expense would help me meet a minimum spend on a new credit card and get a large bonus that I could use for travel. Then my plan was to simply submit for reimbursement through my FSA.
However, when I submitted my dental work claim it kept getting denied. I needed additional paperwork from my dentist. While this was a major hassle it helped me uncover that they overcharged me by $500!
While this was great news it came with complications. I had set up my FSA based on the quote the dentist gave me. Because the dentist overquoted me, I had opted to put $500 more than I needed into my FSA. Because that extra $500 was in my FSA, I can only use that money for certain qualified expenses. If I don’t spend all the money within the time period they allow, I’d lose that money.
Dealing with the use it or lose it rule:
So now it’s February of 2020 and I have until the end of March to spend down about $500. I was a bit worried that I’d lose some of it. However, I didn’t want to give up that easily. I decided to do some research into what counted as qualified expenses.
After digging into the fine print I found out that you can use the money for certain over the counter products. For example, sunblock, lip balm, certain breastfeeding products, first aid kits, and even prenatal vitamins are covered. Amazon even has an “FSA approved” section that you can use to search for qualified items. Click here to check out that section on Amazon.
I also decided to buy prescription sunglasses from EyeBuyDirect because my old ones were scratched. Click here to get $10 off at EyeBuyDirect.
Submitting the Claims
I personally have PayFlex so I have a handy dandy app that shows me how much of my FSA is left. It also allows me to upload receipts and submit a claim from my phone. All I have to do is make qualified purchases, save my receipts, and then submit my claims.
I can purchase your qualified over the counter products from anywhere I’d like (as long as they are products that are covered). For example, I stocked up on prenatal vitamins from Costco. I also stocked up on sunblock for this summer on Walmart.com because I found their prices the most affordable. I was a little worried my claim would get denied since this is new to me. However, I’m happy to report that it was accepted with no questions asked.
Moral of this Financial Story:
As a recap here’s how I saved (and made) some money last year the money hacking mama way:
- Found out major dental expense was needed and postponed it by a few months to be in the new calendar year.
- During my open enrollment, I Set up an FSA for major dental expenses plus a little extra for copays for my checkups as well as my sons.
- Used credit card to get a large boost in reward points for said dental expenses (making money by nearly meeting my minimum spend for a large bonus).
- Submitted my claim to get dental expenses refunded.
- Claim got denied so I reviewed invoice from dentist carefully and found they overcharged me substantially.
- Got a refund from my dentist.
- Had extra money in my FSA, but used it to stock up on qualified over-the-counter products.
Lessons Learned:
When life gives you lemons make lemonade:
My claim got denied at first but this encouraged me to get it figured out and I ended up saving $500 on my dental expense. Sometimes problems are opportunities in disguise.
Don’t settle
I could’ve easily said “O’well I guess I’m going to lose out on that money” but instead I did my research as to why my claim got denied and I caught a mistake. I could’ve also said “O’well, I don’t have any more health care expense, I guess I’ll lose out on that money”, but I did some research and read the FSA rules carefully to figure out what I could do to use my leftover money so it wouldn’t go to waste.
Stockpile
Even if I don’t need sunblock now in February I know I’ll need and use it this summer and that stuff can be expensive! So I’ll buy a lot now and use it later. I also know I’ll be breastfeeding well into 2021 so I stocked up on a year’s worth of prenatal vitamins because those aren’t cheap either (don’t worry I checked the expiration date and we’re good) as well as the breast milk storage bags.
Challenges are opportunities in disguise:
When most people encounter something “unfortunate” like a large unexpected dental expense they immediately panic and get upset. While this is natural and was my first reaction, I slept on it and tried to think differently about the expense and how I can reduce the cost creatively. Then I came up with the strategy above.
The Numbers
Here’s a breakdown of the numbers:
My initial quote for dental work: $2,106
Final bill: $1,530 (after adjusting for billing mistake)
Money saved from catching mistake: $576
Credit card travel rewards earned: 50,000 (equal to at least $500)
Money saved from using pre-tax dollars: $306 (20% marginal tax rate x $1,530 bill)
The final bill for dental work less money saved from catching the mistake, rewards earned and pretax discount: $1,024.
Total savings: $1,082 or 51.4% of the original $2,106 quote.
