3 steps to greater FSA/HSA participation
The rapid spread of COVID-19 has emerged as one of the biggest health crises of our time, with plenty of uncertainty still to come. In response, many American families have turned to self-funded health care benefits like flexible spending accounts (FSAs) and health savings accounts (HSAs) to purchase over-the-counter medicines to prevent and manage symptoms, but until recently, these medicine cabinet staples required a prescription for purchase. That left consumers with a difficult choice: Pay out-of-pocket for OTC medicines and possibly let their tax-free funds go to waste, or take the unnecessary risk and added cost of going to the doctor's office to obtain a prescription.
Thankfully, the passage of the CARES Act reverses this law and eliminates the dilemma. As open enrollment season approaches, employers and benefits managers can pave the way to increased FSA and HSA participation and a better employee experience with a little education about the new changes to eligibility and the convenience and savings they deliver.
Here are three key things all employees should know about the recent CARES Act as it relates to their tax-free funds.
1. Highlight expanded product eligibility
OTC medications. The CARES Act included two revolutionary provisions for FSAs and HSAs: the waiver of the requirement to obtain prescriptions for OTC medicines, and the inclusion of menstrual care products as FSA/HSA eligible expenses. This is significant because eligibility of OTC medications has consistently been one of the most-asked questions and an area of confusion for account holders of all ages.
Why does it matter? OTC medications are especially relevant today, as they may be used to treat the symptoms of COVID-19, as well as other health concerns like pain relief, cold and flu season, and seasonal allergies. In fact, sales for OTC medications reached $35.2 billion in 2018, and recommendations that consumers keep at least a one-month supply of OTC pain medications on hand to treat flu symptoms is increasing demand for these products.
We have seen first hand the rapid spike in sales for products associated with coronavirus preparedness. Purchases of first-aid products, thermometers, nasal saline solution, vaporizers and other eligible cold and flu products more than quadrupled in the second half of February and have been on a steady increase since news of the COVID-19 broke in early January. With more American families factoring OTC medications into their yearly health care spending, this could be a big driver of new FSA/HSA enrollment.
Feminine products. For years, organizations and individuals have been advocating to have feminine products like tampons and pads included as eligible FSA and HSA items. Finally, those efforts have paid off and these essential products can now be purchased with tax-advantaged dollars.
Why does it matter? In 2017, there were more than 165 million women in the United States, compared to just over 159 million men. By 2020, it's projected there will be over 174 million women and 167 million men. This growing demographic will spend an estimated $4,752 over their lifetime on tampons and pads, which doesn't account for related products women buy during the approximately 396 months of their life when they have their period.
Because women continue to be a primary influencer in determining enrollment in and utilization of health benefits and supplemental benefits, like spending accounts, this change makes FSAs and HSAs much more valuable to working professionals.
2. Demonstrate potential tax savings
One of the central benefits of an FSA/HSA is reducing your taxable income by self-funding your account through regular payroll deductions. With far more products available to purchase than ever before, account holders may take a closer look at their yearly contributions. The CARES Act opens up future savings opportunities for working professionals and their families by allowing them to pay for these expenses with tax-advantaged funds and save hundreds in payroll taxes.
Why does it matter? For example, a family who makes the median U.S. household income ($63.688), who fully funds an FSA to the 2020 contribution limit ($2,750) should save about $1,000 or more in payroll taxes over the course of the year. For those who may have avoided these accounts or simply lightly funded them in the past, the ability to save on thousands of new items could change how FSA users fund their accounts in the near future.
Employers should make resources available like calculators and other spending tools so workers can assess their health spending and possible tax savings.
3. Communicate and provide tools
While these welcome changes to FSAs/HSAs provide greater value to employees, the onus is on employers to communicate these changes and help new and returning account holders take full advantage of their benefits.
If employers have created their own account tools or educational supplements, now is the time to update them.
If working with vendor-supplied tools, ask these partners to update all tools and communications to reflect the newly eligible products and savings potential. Such educational aides are essential to helping employees make informed decisions about their finances and their health.
Employees and families who rely on spending account contributions to carry them through times of crisis, when normal income may be reduced or strained, are sure to appreciate the option to enroll in and benefit from these changes. Don't miss out on an opportunity to help them support their health and well-being — while saving money — throughout the year.