
I recently came to the realization that my vision sucks and I need to go see the Optometrist. I decided that if my eyes were bad enough such that I needed to wear contacts or eyeglasses all the time, that I would just skip that whole process and get laser vision correction. I've heard great things about it, however, it does cost about $4000. One of my friends knew well in advance that he was going to have the procedure done and planned for it by allocating the necessary funds into his Flexible Spending Account for
Healthcare (
FSA). So, I decided to investigate FSA's.
For those who are unfamiliar with
FSA's, it's a system whereby you can contribute up to $5000/year from your salary (
pre-tax) to pay for health care expenses. So if I decided that I needed $5000 for health care expenses, my employer would deduct $417/month (pre-tax) from my salary for the entire year and deposit the sum into the
FSA. The good thing about FSA's is that the entire sum of $5000 is available on the first of the year, even though I hadn't actually contributed anything to it yet (remember, my employer will deduct $417/month for the whole calendar year). Funds from the
FSA can be used to pay for authorized health care expenditures. Sounds perfect, right? Well, not exactly, the reason I say it's not exactly "flexible" is that you must decide the amount you want to allocate in advance. At my company, we must decide in October for the upcoming calendar year.
So, using my example, if I wanted to use
pre-tax dollars to pay for my laser vision correction, I would need to allocate the proper amount in October of this year, and get the surgery done no earlier than January 1, 2008. I would have to wait almost an entire year to get my medically necessary procedure. The concept of the spending account being "flexible" is lost on me.
Here is the real kicker about
FSA's, if you do not use the money you allocated for authorized health care expenses by March 15 of the following year, you lose what you did not use. Where does the money go? My initial thought was that the IRS would take the money, after all, you set up an
FSA to avoid paying excess taxes. However, it's your
employer that gets to keep the money which you do not use! I think this is very wrong! A miscalculation about how much I anticipate to spend in health care now benefits my employer?
I think it's great that there is a system to pay for health care expenses
pre-tax, but this system is awful. You need to be a psychic to take full advantage of the program, and if you're not,
cha-
ching! for either your employer (contributed too much), or the IRS (contributed too little).