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FSAs encourage medical spending

By Kay Bell · Bankrate.com
Tuesday, December 6, 2011
Posted: 3 pm ET

After 10 days of sneezing, coughing and sniffling, not to mention dealing with sore, scratchy throats (I almost lost my voice; to the hubby's dismay, I didn't) and itchy eyes, my better half and I are finally over our colds.

We each get one every time we fly. Usually that means one of us gets sick and the other keeps our distance until the sick one's better health returns. This time we flew together, meaning we shared our illnesses.

When I purchased the sixth box of daytime cold tablets and the fourth bottle of nighttime cold syrup, I was really regretting not having a medical flexible savings account, or FSA.

True, it's no longer so easy to use FSA money to pay for over-the-counter medications. Now you have to have a doctor's prescription for the treatments before your FSA will reimburse you.

But I suspect it would have been worth it to make a trip to my physician to get the required paperwork. Plus, I could have used FSA money to cover the office visit co-pay.

That's when it hit me. The special tax treatment of FSAs encourages us to spend more on health care. And isn't that just the opposite of what everyone, from patients to politicians, says we want?

Designed as an employee benefit, an FSA can be very helpful. But you have to be careful to put in the proper amount of money. If you overcontribute, you could end up with more money than you need in the account to cover your eligible medical expenses. And if you don't use it by either the end of the year -- or if your employer allows you the IRS-approved grace period, until the following March 15 -- you'll lose the cash.

It's those instances when FSA owners start looking for ways to spend the cash. Doctors, optometrists and dentists find their schedules packed as Dec. 31 approaches so people can spend up the money.

That's not good health care. That's the medical/workplace benefit equivalent of buying something because you have a coupon. And that usually means you spend money you normally wouldn't or shouldn't spend.

Now I'm not saying that FSAs are inherently bad. In fact, I've often written about how they can save you money, both spending cash and tax dollars. But you need to be smart about contributing to and spending on treatments that are FSA-eligible.

Don't forget medical mileage: While FSAs often reimburse for things that regular health care coverage doesn't cover, such as acupuncture and other alternative treatments, the saving plans usually follow the IRS list of deductible medical expenses.

And one of those expenses is mileage to medical treatment. Check with your FSA administrator about what documentation is required for this transportation.

Then total up those round trips to the doctor and, yes, to the drug store to pick up your medicine.

It might not amount to much at 19 cents per mile for trips between Jan. 1 and June 30 and 23.5 cents per mile for medical-related travel between July 1 and Dec. 31, but every cent can help you zero out your FSA account so you don't lose the money.

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