As part of the tax code titled cafeteria plans or 125 plans, the flexible savings account, offered by many employers but used by few, gives you the ability to set aside cash for medical expenses. The tax savings is there - $350 for every $1,000 contributed. Flexible Savings Accounts or FSAs are an excellent source of medical cost coverage provided you can make good estimates.
An FSA account allows you to defer taxable income. |
This is important because once that decision is made, the only way you can change it is during open enrollment - an event that occurs once a year in many plans, you get married or have a baby. This may difficult to determine during the first year you enroll in the plan. The second year, making the projection for medical spending might be a little easier.
Your FSA Projection
Start now by adding up all of your previous year's medical bills. This should include all prescription drugs as well as doctor's visits and over-the-counter medications. You cannot use the money in an FSA to pay health insurance premiums, long-term care coverage expenses or amounts that are covered under another health plan.
Adding up all of these bills might give a good estimate of how much your next year's medical needs will be. Why is this important? The money in your FSA cannot be rolled over into the next year. You forfeit it and contributions your employer may have made.
That doesn't make it a bad plan. But it does require you keep track of certain expenses and stock up for the following year if you balance looks as if it might be lost. Most FSA plans offer up to $5,000 in contribution limits and some even come with an employer match.
Prescription Costs
Much of what we spend on health insurance is spent on prescriptions. Taking advantage of big retail stores with pharmacies that offer generic drugs at steep discounts is one way of cutting your yearly prescription bills.
Pharmacists do have authority to switch you from a big name drug to a generic equivalent. What they can't do however is offer an alternative drug that might do the same thing for you. In this instance, your doctor will need to re-write that prescription.
Mail order can also save you big money and may actually fill the prescription for longer, offering three months of medicine at a significant discount. Shop around and compare. DestinationRx offers a good tool for comparing costs of drugs and their alternatives.
Additional reading on the subject of healthcare can be found here.
