Deep Dive Into FSA Behavior Finds Knowledge Gaps That May Reduce Effectiveness

June 21, 2022

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Source: BenefitsPRO, by Alan Goforth

Flexible spending accounts can be a useful way for workers to stretch health-care spending dollars further than they otherwise could. However, little is known about how workers use — or don’t use — FSAs.

In response, the Employee Benefit Research Institute established the FSA Database to shine a light on this under-researched employee benefit. Analysis of this database revealed several things:

Contributions. In 2020, workers contributed an average of $1,265 to their FSAs. Only 7.7 percent of accountholders had the benefit of also receiving an employer contribution. Among those who did, the average employer contribution was $299.

Only 3.6 percent of workers contributed the statutory maximum, which was $2,750 for 2020. Inertia may be a powerful force in setting contribution amounts, because 10.5 percent of workers contributed the statutory maximum for 2019 ($2,700).

Distributions. The vast majority of accountholders took a distribution in 2020. Fully 89 percent did, similar to the share of accountholders taking a distribution in 2019. Of those who took a distribution, the average amount withdrawn was $1,287, nearly identical to the average of $1,279 observed in 2019.

That distributions are closely tied to contributions is not surprising. There is a strong incentive for FSA accountholders to spend the entirety of their balances. Unlike with health savings accounts, there is a limit to how much accountholders can roll over each year — if they can at all — and so accountholders generally cannot withdraw significantly more than they contribute.

Limited-purpose FSAs. Workers enrolled in an HSA are ineligible to contribute to regular health-care FSAs, but they can enroll in limited-purpose FSAs to save specifically for vision and dental expenses. Because these accounts specifically are intended for defraying dental and vision expenses, accountholders tend to use them differently than standard health- care FSAs.

Notably, the average contribution was significantly smaller than the average contribution to a standard health-care FSA — $859, compared with $1,259. This may reflect the more limited scope of qualified medical expenditures that are eligible for reimbursement compared with a regular health-care FSA.

Three different FSA types. “Use-it-or-lose-it” FSAs are self-explanatory; accountholders forfeit any money remaining at the end of the plan year to their employer. FSAs with a rollover feature, on the other hand, allow the accountholder to roll over funds to the next year, up to a statutorily defined amount.

“Grace-period” FSAs allow workers to take distributions up to two and a half months after the end of the plan year. All three types of FSAs had similar average contribution and distributions. Only about $150 separated the average contribution of a “use-it-or-lose-it” FSA and the average contribution of a rollover FSA.

Similarly, the three FSA types saw similar average distributions; about $120 separated the smallest average distribution, seen in “use-it-or-lose-it” FSAs, from the largest average distribution, seen in FSAs with a grace period.

Age and FSA attributes. FSA contributions and distributions both increase with age. Older accountholders are more likely to incur health-care expenditures than their younger counterparts and, because of higher salaries on average, may be better positioned to divert more discretionary dollars to FSAs as well.

Younger accountholders contributed relatively little to their FSAs in 2020, contributing an average of $499. Generally, as age increased, so did average contribution, with one notable exception: The 45 to 54 age group contributed the most, diverting on average of $1,430 to their FSA. The oldest workers in EBRI’s FSA Database contributed the second-highest amount, chipping in an average of $1,427.

“Developing a better understanding of accountholder behavior is critical in fostering optimal usage of FSAs and ultimately can improve workers’ financial well-being,” the report concluded.

“While it is encouraging that older workers stretched their health-care dollars further with higher average contributions and more frequent distributions, younger workers had relatively small contributions, and little more than half took a distribution from their FSA. This is perhaps indicative of a knowledge gap and may hinder a worker’s financial wellbeing.”


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