by Burt Bollinger

In a time when many St. Louis area employers are cutting back on their expenses and watching as their insurance rates rise, there is actually some good news for their employees. A benefit that is gaining in popularity can save employees money on the items they use every day, provided they take enough time to plan ahead.

Flexible Spending Accounts, also known as Cafeteria Plans, give workers the ability to purchase a smorgasbord of everyday items and services on a pre-tax basis. These tax savings include federal, state, local and Social Security.

Currently, there are two common types of FSAs. One is dependent care spending, be it for child or elder care. The other – and the one of interest to most – is for medical reimbursement.

“Flexible Spending Accounts are authorized under Section 125 of the Internal Revenue Code,” explains David Turner, sales director at BusinessPlans Inc., based in Dayton, Ohio. “It’s called a Cafeteria Plan because of the ability of the employee to pick and choose the benefits that best work for them.” MyCafeteriaPlan.com, which falls under BusinessPlans Inc.’s umbrella, is one of many third-party administrators that takes much of the hassle out of setting up FSAs for businesses.

“Under a Flexible Spending Account, employees are able to reduce their taxable income and use this income reduction to pay for items that normally would have been paid for with after-tax dollars,” says Turner. The money is withheld pre-tax from each paycheck and builds up in an account that is designated for purposes the employee designates.

Office co-pays, medicine prescriptions, laser eye surgery and orthodontics are all very common expenses paid for under the plan, which allows an employee to deposit up to $5,000 per year. The IRS now also allows over-thecounter items such as allergy medications, aspirin, antacids and the like to also be run through the plan on a pre-tax basis.

However, as is often the way of things, there is a small catch – the “use it or lose it” rule. It means that any money remaining in the employee’s account at the end of the year becomes the property of the employer. While this may seem harsh, sound and conservative planning will prevent it from happening.

“The ‘use it or lose it rule’ should never keep an employee from participating in a Cafeteria Plan,” says Turner. “What people need to do is just plan on known expenses. They should think about the things they know they’ll be paying for out of pocket, regardless if they are healthy or sick.”

“Employees might be afraid that they are going to lose something, but what they need to do is simply take the time to outline what their expenses will be,” says Gigi Henson, director of benefits at Saint Louis University. “I think every employee, if they have a predictable medical and/or dental expense from one year to the next, should participate in the program.”

Saint Louis University employees have two different ways that they can be reimbursed for their expenses.

“Once they have decided how much they would like taken out of their checks, they can use a debit card at the point of purchase,” says Henson. “They swipe the card, and any co-pays the employee is required to pay would come off the debit card account.” The other option involves simply submitting receipts to a third-party administrator such as MyCafeteriaPlan.com.

“The reason these accounts are becoming more popular is because insurance rates are coming in at 15 to 35 percent increases year after year,” explains Turner. “Employers cannot keep absorbing the cost of these increases, so they are making benefit changes. Because they are increasing deductibles and out-of-pocket expenses, they feel they need to give something back. The Cafeteria Plan is the perfect way to do this. Truly it is a win-win benefit for both the employer and employee.”

As the cost of healthcare, daycare and other common expenses continue to rise, Flexible Spending Accounts offer employees economical options for making payments on planned expenditures. This is one case in which the Internal Revenue Service is actually helping employees save money and manage it more wisely.

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