A recent study by Aon Hewitt, shows that Flexible Spending Account (FSA) adoption by employees is declining. According to the study, the average FSA contribution per participant fell to $1,342 in 2015, down from $1,405 in 2014, while 17% of employees working for employers offering FSAs made contributions in 2015, down from 20% the prior year. However, this benefit is still extremely valuable to employees due to the potential tax savings.
Because FSA contributions are tax free, employees can see significant savings on their qualified medical expenses. This often gets overlooked, letting this valuable benefit go to waste.
The key to FSA adoption is communication. Open Enrollment brings a flood of information about a variety of different benefits. Employees can be overwhelmed by the information and often select only the benefits they feel are absolutely necessary, missing out on additional benefits like an FSA that could provide significant financial savings. It’s important to educate employees not just at open enrollment, but throughout the year.
It’s also important for employees to understand the many ways to use a FSA. Many employees don’t realize that it can be used to purchase items and procedures not covered by insurance. These can include Lasik surgery, orthodontia, and sun screen.
Often FSAs are seen as an add-on benefit that gets reviewed and explained much more briefly than core benefits such as medical or dental insurance. The most successful employers position an FSA as a component of the core benefits as opposed to something extra.
Another key to successful FSA implementation is timing. It’s crucial that you provide employees enough time to evaluate their medical needs and accurately make FSA elections. Due to the use it or lose it nature of the election and not being able to change it throughout the year, employees will want to ensure that they don’t over-elect their contributions but they are still able to maximize their tax savings.
FSAs are valuable benefits that cost employers relatively little. In order to maximize adoption by employees, it’s important to be proactive and ensure that you are properly educating your population on how to get the most out of the benefit.