In-depth analysis of FSA behavior reveals knowledge gaps that may reduce effectiveness

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Flexible spending accounts can be a useful way for workers to stretch healthcare spending further than they otherwise could. However, little is known about how workers use – or do not use – FSAs.

In response, the Employee Benefits Research Institute created the FSA Database to shed light on this understudied employee benefit. Analysis of this database revealed several things:

Submissions. In 2020, workers contributed an average of $1,265 to their RTA. Only 7.7% of account holders had the benefit of also receiving an employer contribution. Among those who did, the average employer contribution was $299.

Only 3.6% of workers contributed the legal maximum, which was $2,750 for 2020. Inertia can be a powerful force in setting contribution amounts, as 10.5% of workers contributed the legal maximum for 2019 ($2,700).

Distributions. The vast majority of account holders received a distribution in 2020. At least 89% did, which is similar to the share of account holders who received a distribution in 2019. Of those who received a distribution, the average amount withdrawn was $1,287, almost identical to the observed average of $1,279. in 2019.

That distributions are closely related to contributions is not surprising. FSA account holders are strongly encouraged to spend all of their balances. Unlike health savings accounts, there is a limit to the amount account holders can carry forward each year – if at all – and so account holders generally cannot withdraw much more than they need. contribute.

Limited use FSA. Workers enrolled in an HSA are not eligible to contribute to regular health care FSAs, but they can enroll in limited-use FSAs to save specifically for vision and dental expenses. Since these accounts are specifically intended to cover dental and vision expenses, account holders tend to use them differently than standard healthcare RTAs.

Notably, the average contribution was significantly lower than the average contribution to a standard healthcare FSA – $859, compared to $1,259. This may reflect the more limited scope of eligible medical expenses eligible for reimbursement compared to a regular healthcare FSA.

Three different types of FSA. Use-it-or-lose-it FSAs are self-explanatory; account holders forfeit any money remaining at the end of the plan year to their employer. Rollover FSAs, on the other hand, allow the account holder to roll over funds to the next year, up to an amount set by law.

Grace period FSAs allow workers to receive distributions up to two and a half months after the end of the plan year. The three types of RTA had similar mean contribution and distributions. Only about $150 separates the average contribution from a use-it-or-lose-it FSA and the average contribution from a rollover FSA.

Similarly, the three types of RTA experienced similar mean distributions; about $120 separated the smallest average distribution, observed in “use it or lose it” RTAs, from the largest average distribution, observed in RTAs with a grace period.

Age and FSA attributes. FSA contributions and distributions both increase with age. Older account holders are more likely to incur healthcare expenditures than their younger counterparts and, due to higher wages on average, may be in a better position to divert more discretionary dollars to RTAs as well.

Younger account holders contributed relatively little to their RTAs in 2020, contributing an average of $499. Generally, as age increased, the average contribution also increased, with one exception: the 45-54 age group contributed the most, diverting an average of $1,430 to their FSA. The oldest workers in EBRI’s FSA database contributed the second highest amount, with an average of $1,427.

“Developing a better understanding of account holder behavior is essential to fostering optimal use of ASPs and, ultimately, can improve the financial well-being of workers,” the report concludes.

“While it is encouraging that older workers further stretched their healthcare expenditures with higher average contributions and more frequent distributions, younger workers had relatively low contributions and just over half received a distribution of their FSA. It may indicate a lack of knowledge and can negatively affect a worker’s financial well-being. »

Sara H. Byrd