When you set up your employee benefits, you might wonder if you should offer extended benefits beyond just health insurance. One of the options you might consider is offering a Flexible Spending Account, also called an FSA. These plans allow participants to devote part of their pay towards medical expenses. They can also provide certain tax benefits. Employees who have considerable health care expenditures often benefit by investing in an FSA. Here’s why you should consider offering them.

What are FSAs?  

Most people know when they will have to pay for certain health care, even if they have health insurance. Regular costs might include co-payments for physician services or the cost of prescriptions. People might even face the occasional unexpected cost from an urgent care visit to get a flu or strep test.  

By having an FSA, your employees can set aside money towards such expenses with each paycheck. When an employee enrolls in an FSA, they choose an amount of money that they want to go into the account annually. That amount will divide by the number of paychecks they will receive that year. With each pay period, they will give you permission to send that portion of their pay into the account. This money will then become earmarked for certain medical expenses. 

The Benefits of an FSA  

FSA deductions often work much in the same way as health insurance or tax deductions. Employers take this money out before the employee receives their pay. An FSA contribution option will work in much the same way. Money will go into the FSA account before employees receive their paychecks.  

Therefore, participants can often better plan their household budgets. However, they will still know that they have dedicated money set aside for health care costs. What’s more, FSAs often allow money someone doesn’t use in one month to roll over to the next month. So even if someone doesn't use FSA money in one month, they can still use it later. 

Additionally, FSAs have their tax benefits. FSAs usually allow policyholders to set money aside pre-tax. Therefore, the actual income that the participant must pay tax on will decrease. The participant therefore might even bring home a bigger paycheck.  

Keep in mind, FSAs won’t pay for every medical expense. They also will require participants to re-enroll annually. If you have money left in your previous account, then only a certain amount of money might roll over to the new plan. If the employee leaves your company, then they likely can’t take their unused FSA money with them, either. Always provide employees with the right information to let them decide if this plan is right for them, and how much they want to contribute to it.