As the year comes to a close, individuals with Health Care Flexible Spending Accounts (FSAs) should check their account balances and make plans to spend any remaining funds by the end of the year so that funds are not forfeited. Remember most plans require that you spend your available balance by year end. (Some plans have a Grace Period whereby you can continue to incur eligible expenses for up to an additional 2.5 months after the plan year ended. Check your SPD or other materials for that.) Consider the following to avoid the "use-it-or-lose-it" pitfall:

1) Consider eligible expenses for your dependents. Many participants overlook dependents, especially if they are only carrying single coverage with their Employer's group health plan. Even though your spouse, for example, is covering your dependents on his/her group health plan, dependents are still eligible to incur eligible expenses.

2) Contact your pharmacy and request print-outs of prescriptions purchased during the plan year. Review it to be sure that all items have been submitted for reimbursement.

3) Scheduling a major event. As we know, you have to plan your expenses in advance, possibly during open enrollment. So, you are considering surgery, which may cost you $2,000 out of pocket but you still need to get a second opinion and to schedule the surgery around next year’s schedules and so forth - in other words, the surgery is still not firmed up. How to avoid putting those dollars at risk if the surgery is postponed? Consider other possible items that are similar: your spouse would benefit from corrective eye surgery or your daughter is considering braces. Since all these items are possibilities, you can fund your account significantly and plan for a primary treatment and then rely on the other possibilities if your plans or timing change. Keep in mind that reimbursement is based on date of service, not when you pay for the expense or when it is processed by insurance.

4) Over-the-Counter (OTC) Medical Expenses. Families can have a lot of these throughout the year. "But wait, these are no longer FSA eligible expenses!" Ah, but they are, as long as you have a doctor’s prescription for them. So, if you and/or your dependents have chronic conditions: allergies; migraines; sinusitis; repetitive earaches; heartburn; joint pain and other similar continuing conditions; get your doctor to write you a prescription. The Rx can read “unlimited refills”. You can buy a reasonable amount of these medications this year. The IRS does not allow stockpiling (purchasing more than 3 of the same item on a given receipt), but resupplying your medicine cabinet is acceptable. Use the doctors’ prescription - not at the pharmacy or retail store - but when you submit your expenses for FSA reimbursement.

5) OTC items not requiring Rx.  Here are some of the common expenses that do not need a doctor's prescription:

• Nicotine Gum to help stop smoking
• Bandages
• Braces and supports
• Condoms
• Contact Lens Solution

6) Exercise equipment or gym memberships. These, too, require a doctor’s prescription. However, some of us have conditions that have medically benefited from exercise. If you have high cholesterol or blood pressure or other issues, check with your doctor to see if he will prescribe these for you. Buying these items with pre-tax dollars is like getting a big discount. (Shop around for a discount, anyway!) Note that if you already have a gym membership, having this subsequently reconsidered as an eligible expense will prove difficult, even with a physician “prescription”.

7) Eyeglasses and even prescription sunglasses. Multiple pairs are permissible. Those can eat up a balance in a hurry! You must be reasonable—six new pairs for one person would be likely deemed “stockpiling”. (Don’t forget, if you need reading glasses, those qualify as well!)

8) You can claim mileage at the rate of 23.5 cents per mile (for 2011). Careful tracking of mileage is required. When submitting the mileage for reimbursement, be sure to also submit the corresponding office visit receipt and/or prescription receipt for verification of service date.

9) Dental cleanings. Many dentists recommend more frequent cleanings than are covered under typical dental programs; who doesn’t want a great smile for the holidays?

10) Chiropractic and acupuncture. Year end may be a good time to schedule that chiropractic or acupuncture appointment to deal with nagging issues or chronic problems.

ADVANCED STRATEGIES

Our final two illustrations are compliant but take very careful advance planning. You will likely need to make special provisions with your intended service professional. We recommend you consult with your FSA administrator to review your advance treatment plan and to help confirm that the procedures and documentation will prove acceptable. (Caution: if you get some of these requirements wrong—you may be very disappointed with the result!)

11) Many more expensive Medical or Dental procedures require a series of visits or treatments. With some careful planning and advance coordination with your health provider, you can “bridge” these expenses among plan years. Need some crowns for a missing tooth? With available dollars in your FSA this year, you can schedule your first visit and incur an expense to use current year balances. Then, you can fund a new balance for next year in an amount to cover the balance of the visits to complete your bridge. So, you (and your dentist or physician) can time the treatment plan around your FSA balance and plan years. Careful planning and caution is advised when “bridging” services and dates of service. The final date of service on a routine Explanation of Benefits form may not be the actual date you were seen at the provider’s office, depending on what service was performed at the time, and the number of visits to the providers’ facility.

Example: You had intended to replace your missing tooth and funded for a bridge and other flex expenses in 2011. You now find yourself in mid-December with $1,000 remaining in your account and no other good uses to apply it to.

Working in advance with your dentist, you build a proposed detailed treatment plan. That written plan details services to be provided on various future visits and dates. Any service covered by insurance should be taken into account during the planning process.

In the first December visit, it is determined that the Doctor will do a detailed examination, including any special x-rays or other diagnostics for suitability and fit. At that time, impressions will be taken to allow for the ordering of the permanent hardware. It is agreed that, with the total fees of $3,400 for the complete procedure (and with dental insurance covering $1100 of the total), $1,000 will be billed for the above services rendered in December (patient billing). The remaining patient expenses of $1,300 which consists of the hardware and the fitting and follow-up services will be billed in January following completion.

As long as the documentation/ services and pricing are complete with the dates of service, these are compliant with IRS “incurred date” rules. You may find, however, that certain providers may not be cooperative in assisting you with breaking a single procedure into service components and dates.

12)  If you are considering corrective eye surgery or other significant dental or medical treatments that leave you with out of pocket costs, consider doing these in 2012. Beginning in 2013 new Federal law will limit your annual FSA funding amount to $2,500.  So, if your LASIK surgery is $3,500, plan for that under these rules, or use the bridging technique, above.  (Start your LASIK diagnostics and pre-surgery items in a current plan year and pay an agreed amount for this portion of the $3,500. Say $1,000 in December. Then, with the actual surgery in January, a new plan year in this example, you can pay the final $2,500 in that plan year.) Careful planning and caution is advised when “bridging” services and dates of service, see above. You will need your ophthalmologist to provide you with detailed invoicing of the pre-surgery and post surgery services, with dates of service and amount of billing. Absent advance planning and provider cooperation, the final date of service on a routine Explanation of Benefits form may not be the actual date you were seen at the provider’s office, depending on what service was performed at the time, and the number of visits to the providers’ facility.  Again, we highly recommend you review your written treatment plan, with services and dates with your flex provider, in advance, to assist in assuring compliance and successful reimbursement.