Every year you elect to set aside a certain amount of money. (ie $2000 per benefit year). This money is deducted over the course of the year, but you are eligible to access the entire amount once the benefit year starts. But here is the rub, if you don't spend it you lose the money to whomever is managing the spending account.
MSA/HSA = Medical Savings Account/ Health Savings Account
You elect to set aside a certain amount of money per paycheck into a tax advantaged account. The Money is deducted per pay period. The Amount accessible is whatever the account balance is. You do not have to spend all of the money in a calendar year. You maintain access to that money forever.
Things to consider if you have an FSA account:
1) Are you ahead or behind in your reimbursements vs. payroll contributions.
Behind = You have paid more into the account than you have received in reimbursements
Ahead = You have paid less into the account than you received in reimbursements.
2) Do you have any expenses that you have not submitted? -- Do that NOW
3) Can you generate new expenses that you can submit for reimbursement before your window closes? Do that NOW.
The goal is to be ahead on the curve. Ideally you want to submit expenses that will bring your account balance to $0. Remember when I said if you don't spend it someone else gets to keep it? Well, the flipside is also true. You are able to access the entire balance on Day 1 of the benefit year. If you have valid expenses, you can be reimbursed for the entire balance on Day 2. If the company lays you off on Day3 before you contributed a dime, sucks to be them. The same entity that gets to keep the excess, is the same entity that must make up the difference.
So, if your benefits end at the end of the month, now is the time to get new glasses or dental work to draw down that balance - either to $0 or to where you are Ahead.
Things to consider if you have an MSA/HSA account:
You can use this money for medical-related expenses. It may allow you to maintain your prescriptions and minor health issues long enough for your new job benefits to kick in and avoid the expense of COBRA. You have a certain window after termination to elect for COBRA so its something to consider.
FSA contributions are pre-tax, so there's a benefit to the employee for all the rigamarole. Personally, my predictable eligible expenses were not usually at a level where it made sense, and then the one time I thought it did, the billing didn't match, so I had to find extra things to expense, and it was a giant pain. Especially when the rules changed and over the counter medication was no longer eligible.
Clearly, the financial companies behind this have an actuarial interest. And the employers have something to check off; not sure if they also get to save on some payroll tax on the elected amount?
I don't mean "why would people use it", I can see benefits for sure, it's just so... contrived... that it really seems like a terrible implementation of whatever the government/companies actually meant to incentivize.
It's better than nothing at all, but it definitely seems worse than a lot of other ways this could have been implemented.
The alternative is probably just deducting medical costs, but that's worse: can't do it unless your costs are significant (there's a % of income required and it needs to get over the standard deduction too). But yeah. Pretty terrible.
corruption and anti worker sentiment on all levels.
other answer is already underneath the framing that it exists and will try to justify it within the system.
all benefits, specially the few one code in law, serve to create the illusion of belonging to a different class while oppressing so you keep that class engaged in production.
so, existis for the same reason a complicated tax code does.
FSA = Flexible Spending Account.
Every year you elect to set aside a certain amount of money. (ie $2000 per benefit year). This money is deducted over the course of the year, but you are eligible to access the entire amount once the benefit year starts. But here is the rub, if you don't spend it you lose the money to whomever is managing the spending account.
MSA/HSA = Medical Savings Account/ Health Savings Account You elect to set aside a certain amount of money per paycheck into a tax advantaged account. The Money is deducted per pay period. The Amount accessible is whatever the account balance is. You do not have to spend all of the money in a calendar year. You maintain access to that money forever.
Things to consider if you have an FSA account: 1) Are you ahead or behind in your reimbursements vs. payroll contributions. Behind = You have paid more into the account than you have received in reimbursements Ahead = You have paid less into the account than you received in reimbursements.
2) Do you have any expenses that you have not submitted? -- Do that NOW
3) Can you generate new expenses that you can submit for reimbursement before your window closes? Do that NOW.
The goal is to be ahead on the curve. Ideally you want to submit expenses that will bring your account balance to $0. Remember when I said if you don't spend it someone else gets to keep it? Well, the flipside is also true. You are able to access the entire balance on Day 1 of the benefit year. If you have valid expenses, you can be reimbursed for the entire balance on Day 2. If the company lays you off on Day3 before you contributed a dime, sucks to be them. The same entity that gets to keep the excess, is the same entity that must make up the difference.
So, if your benefits end at the end of the month, now is the time to get new glasses or dental work to draw down that balance - either to $0 or to where you are Ahead.
Things to consider if you have an MSA/HSA account: You can use this money for medical-related expenses. It may allow you to maintain your prescriptions and minor health issues long enough for your new job benefits to kick in and avoid the expense of COBRA. You have a certain window after termination to elect for COBRA so its something to consider.