Flexible Spending Account - Frequently Asked Questions

Do employees need to utilize the employer's group health coverage to participate in the FSA?

Do employees need to utilize the employer's group health coverage to participate in the FSA?
Employees are not restricted to the employer’s group health coverage, since the FSA can be used in conjunction with any health insurance policy.

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Can I change my elections during the plan year?
No, unless there is a change in the participant’s status or other qualifying event as defined by the IRS.

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What medical expenses are eligible for the FSA?
The BASE® 125 Flexible Spending Account can be used to pay for medical expenses not paid for by insurance, usually deductibles, copayments, and coinsurance for the employee's health plan. A listing of legitimate expenses that can reimbursed for medical care can be found under Code § 213(d) that are not excluded by the plan documents. In order for an expense to be considered medical care under the tax laws, it must diagnose, cure, mitigate, treat or prevent disease, or affect a structure or function of the body.

Many people use IRS Publication No. 502 (“Medical and Dental Expenses”) to help guide them as to what expenses meet the Code requirements. But this publication should be used with caution, because it was meant only to help taxpayers figure out their income tax deductions – some statements are wrong when applied to health FSAs.

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Can an employer self administer an FSA?
Yes. However, there are many drawbacks to self administering an FSA.

• An employer who self administers an FSA runs the risk of violating HIPAA requirements and limits, and even if the employer has under 50 employees it requires a co-worker to review personal health information.
• The man power required would eliminate any savings, especially considering the additional workload placed on someone to track contributions, handle reimbursements, keeping up to date on eligibility of expenses, adjudicate claims, etc.
• There is a lot of ongoing training and legal fees necessary to ensure the FSA stays in compliance and follows all rules and regulations established by the IRS, ERISA, etc. that come at an additional expense.
• The employer would also need to complete the Highly Compensated and Key Employee testing required for a 125 Cafeteria Plan

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