Lower FSA Obstacles for Adoption and Usage

Flexible spending accounts (FSAs) are the most common tax-advantaged healthcare spending account currently available and have been around the longest. But they are often misunderstood and underutilized.

Even though FSA account holders can experience tax savings of 20- 40% on the funds set aside, many companies have a relatively low adoption rate. The biggest objection? Despite many companies providing a Carryover option, many account holders still experience a loss of at least some unspent funds at the end of the plan.

In this article, we’ll look at FSA availability and usage and suggest ways to lower the obstacles to successful FSA usage.

Current FSA Availability and Usage

  • There are an estimated 32.6 million FSAs in 2022, up from 31.7 million in 2021, according to market forecasts by the Aite-Novarica Group.
  • The U.S. Bureau of Labor Statistics reports that 43% of employees in private businesses and 71% of state and local government employees had access to a healthcare FSA through their employers in 2021.
  • More than 40% of FSA account holders forfeited at least part of their account contributions in recent years, according to data collected by the Employee Benefit Research Institute (EBRI). EBRI puts the average annual loss per account at between $339 and $408. 

Ways to Increase FSA Adoption and Usage

Two of the most effective ways to raise FSA adoption, increase usage, and lessen the chance of forfeiture are (1) year-round employee education and engagement and (2) implementing ease-of-use features, including debit cards and mobile apps.

Education and Engagement are Vital

PlanSponsor reported in 2021 that two-thirds of employees want year-round help understanding and using their benefits. That number goes up to 78% among Millennials. So, what kinds of information should you be providing?

  • Details on how FSAs work
  • Explanations of how to achieve tax savings
  • Reviews of eligible products and services
  • Information on carryover (or grace period) and run-out period
  • How-to tips on the best way to determine the amount to set aside

Equally as important is education frequency and duration. Employees can benefit from educational initiatives during enrollment, but also need and want focused education communications, engagement activities, and “check your account” reminders throughout the plan year.

Incorporate Ease-of-Use Features

It stands to reason that increased adoption and usage will follow when you make it easier to use FSAs. Two popular convenience features are debit cards and mobile apps.

With debit cards, employee-participants have immediate access to funds. They can also avoid the financial and time burden of paying in advance, submitting claim forms, and waiting for reimbursement. Further, they can track card usage online to keep up with how they are spending their funds. Finally, employees can use debit cards to pay for eligible expenses in-person and online.

Mobile apps enable account holders to check account balances and review card transactions on their phones. In situations where they cannot use their debit card, participants can file claims online and upload photos of receipts.

Help Your Employees Get and Use FSAs

Employees who fully understand FSA accounts are more likely to enroll and use them effectively. Your benefits package is only as good as your employees’ satisfaction with using it. Consider these suggestions to help increase FSA adoption during annual enrollment.