What Happens to Your Flexible Spending Account After Job Loss
The cost of healthcare is constantly rising, so many individuals prepare for potential medical expenses by contributing to job-related FSA accounts. But what happens to the money you contribute to an FSA if you leave or lose your job? You definitely don’t want to lose the hundreds or even thousands of dollars you’ve contributed, so to better where that money goes when you no longer work for your employer, let’s take a closer look at FSAs, COBRA coverage, and ways you can use your FSA money before you lose it.
What is an FSA?
An FSA, otherwise known as a Flexible Spending Account, is a specific account type that professionals may use to cover certain medical costs. The money put into an individual’s FSA may be contributed to by both the employee and the employer, depending on the company’s policies, and it is tax-exempt. This means that whatever money is put into the account is added before taxes are deducted, leaving only the leftover amount to be eligible for taxation.
The amount an individual may contribute to their FSA is regulated to prevent an excess amount of money from being poured in each year, and also to prevent individuals from losing that amount as no more than $570 may carry over to the next year.
Where FSA Money Goes When Your Job Ends
By their nature, FSAs are closely linked to an individual’s job. This means that any money you’ve placed in your FSA will go to your employer if you lose or quit your job. This can result in the loss of thousands of dollars on the part of the individual. Fortunately, there is an option available that may allow you to retain your FSA coverage known as COBRA continuation coverage.
COBRA Continuation Coverage
COBRA, also known as the Consolidated Omnibus Budget Reconciliation Act, is a governmental act that requires employers to continue providing temporary medical coverage to employees and their families if they meet certain qualifications. For example, if you leave your job or lose your position for reasons other than gross misconduct, COBRA allows you to extend your FSA coverage for up to eighteen months on average. Additionally, employees only qualify for COBRA coverage if their company belongs to the private sector, employee organizations, or state or local government employers who employ more than twenty individuals.
But keep in mind that COBRA coverage is significantly more expensive than other coverage options. Typically, employers are allowed to charge up to 102% of their cost of insurance–100% being the cost the employer takes to ensure their employee and the other 2% to cover any administrative fees. However, keep in mind that while COBRA coverage is more costly upfront, it is still usually cheaper than investing in individual health insurance policies.
Ways to Use Your FSA Money Before Job Loss
If you are choosing to leave your job, or if you’ve been given any notice as to when you’ll be losing your position, it may be wise to begin using the funds you’ve accrued in your FSA so you don’t lose it all. And while you may only use the funds to offset the costs of health-related issues, there are several ways you can use that money before it’s gone. Let’s take a closer look at a few of the most popular options.
Making sure you’re up-to-date with all of your annual appointments is a great way to prepare for your transition to a new insurance company, or even to ensure no problems exist that may need to be tackled while you are still under your current coverage.
While health insurance may cover the up-front costs associated with medical appointments, it may not extend to any prescriptions that you may need to have filled. These can range from medicines, both over-the-counter and prescription, and health-related personal care items to new glasses, prescription sunglasses, contacts, and even some menstrual products. Additionally, items including bandages, sunscreen, condoms, pregnancy tests, and other medical paraphernalia may be purchased with FSA funds.
If you’ve been considering any elective treatments or surgeries, the time just before you leave your job may be the best time to undergo them as you’ll still be under coverage, and may even be able to use PTO to cover any time away from your workplace to recover. These treatments may include things like cosmetic procedures or more intense operations like kidney stone removal, appendix removal, tonsil removal, and hip replacements may also be eligible for coverage with your FSA funds.
Employee Benefits Made Easy
At Beckham Insurance Group, our knowledgeable and experienced employee benefits representatives are here to help make your benefits administration as easy and stress-free as possible. Contact us today to learn more about how we can help you build a competitive and comprehensive benefits program.