Why the flex spending account is ridiculous

I found myself recently in a large national chain pharmacy store late at night, wandering the aisles and thinking to myself:

“Now what else can I find to spend money on?“

This ridiculous question sums up so much of what is wrong about the standard flexible spending account.

FSA recap

I’ve talked about the Flex Spending Account (FSA). It’s a financial product designed to help lower the cost of paying for medical expenses by making qualifying expenses “pre-tax”. You can sign up for this through your employer, or alternately you can set up a Medical Savings Account (MSA), a similar product. (Again, these products are relevant for the USA, but I imagine other countries may have similar products.)

I’ve already said that this product is great, and that if you have the option, you definitely owe it to yourself to sign up.

That said, you can get burned by it if you’re not careful. And by you, I mean me.

The biggest bummer about the FSA is, of course, that the money eventually expires. You may have a grace period, but after that, the money goes “poof“. Or rather, I hope it makes that sound, as that’s exactly what’s about to happen with my account.

Poof

This past year, I put a large amount in my FSA account. It was more than I had ever put in, but I extrapolated from previous years, and figured that it wasn’t too overly ambitious given my spending habits. And I had usually run out in previous years.

But come December, I was faintly appalled to see that I still had hundreds of dollars left in this account. I had spent very little on medical expenses this year. My extrapolation was very wrong (which became obvious with the benefit of hindsight).

(Okay, let me just stop to point out just how grateful I am that I didn’t have more medical expenses. I wouldn’t trade that for any amount of expiring money. But back to the story.)

So with a grace period leading into March, I had a few options. The easiest option would be to just let the money expire. This wouldn’t break my personal bank; the money had already been “spent” as far as I was concerned, so it’s not like I would notice anything. And because this was pre-tax money, I wasn’t even losing the entire amount.

And yet, this was still money that could be spent. And while it may be the financial equivalent of “clean your plate before you leave the table”, it felt wrong to leave that money untouched when I had technically already spent it.

Are there alternatives?

I had a friend mention at the beginning of this “FiSAco” (as I’ve been terming it) that I should use my extra money to buy medical supplies for someone who really needs it. I think that’s definitely a cool solution, though I couldn’t find a good way to do that in an efficient way.

Alternately, what about an “expiring FSA money collective” (“Collective Savings Account”?) with unused funds going to those who need it? I’d be up for that.

But really, why does the money need to expire in the first place? What’s the point? Who benefits from this?

Well, the employer for one, as they get the unused money.

But let’s step back and dream really big: what is the purpose of this entire FSA nonsense? To my mind, it’s to make medical expenses, already ludicrously expensive, less burdensome. And using pre-tax money allows an easy way to make this happen under the umbrella of the tax code.

But why get taxes involved in the first place? Couldn’t we reduce costs in some other way? Couldn’t we reduce the cost of items by 30% right now, and then reimburse the product providers through the same mechanism we use today? It would be the same end-result, but the burden of reimbursement would fall to the product providers. Why don’t we make them fill out their own version of an FSA to get reimbursed? Can’t we do better than this? Indeed we can, we just don’t.

Flexible Spending Spree

And so, since the year started, I’ve been on a kind of medical spending spree.

First off, I visited FSAstore.com, as I figured I could just buy some household items and pay for it with my account. Unfortunately, the selection of items on this site leaves a fair amount to be desired, and anyway, most of the items that I would buy required a doctor’s prescription.

Being stubborn tenacious by nature, I actually did this, asking my doctor for a prescription to buy some over-the-counter skin care items that I would have eventually bought anyway. This felt ridiculous, but not quite to the point of fraud. And it did knock of a chunk of the balance off my account.

At my next dentist appointment, I walked out with a two year supply of electric toothbrush heads, knocking down my balance still further.

But as the month of March started, I found that I had still further to go.

Late night at the pharmacy

Which brings me to my late night pharmacy run.

Pharmacies can accept FSA cards as a method of payment. But the way this is implemented is absurd. No one has any idea if the purchase is acceptable via FSA until you actually try to ring it up. Does this strike anyone else as inefficient?

At one point, I went around the store, grabbing all sorts of various items in my cart, and then experimentally tried to buy each one of them with my card. (You can see why I did this late at night, when the store was less crowded.) From this, I deduced that the list of eligible items made absolutely no sense.

For example, hydrogen peroxide, that staple of medicine cabinets everywhere, was not eligible for purchase. Neither was mouthwash, or multivitamins, or ibuprofen.

On the other hand, Dr. Scholl’s inserts were just fine. I don’t get it.

I bought what I could, and eventually just gave up. I left a little bit of money in my account, but I’m beyond caring at this point.

And this year, I made sure to put much less money in my account, against the day when we can come up with a system better than this.

But on balance, it’s nice to know that I now have inserts for the next few pairs of shoes I have yet to buy.

Thanks to the FSA program for footing the bill.*

* Sorry.

But enough about me. Have you been burned by a flex spending account?