It’s no secret that your employees would probably welcome some additional assistance to reduce the burden of potential out-of-pocket medical expenses. One way to ease the burden is to ensure your employees have a solid understanding of the types of benefits your organization offers in the first place.

Are you aware of the year-end deadlines associated with pre-tax benefit accounts, like flexible spending accounts (FSAs)? For FSAs, many plan years will be ending in December. It is important that participants have a clear understanding of their account balances and how they can best spend those balances to not forfeit any dollars at year-end.

Let’s focus on one key phrase: Qualified medical expenses. What determines whether an expense is qualified or not? Generally, federal guidelines provide clear direction on these medical expenses, but we’ll go over some of the general ground rules for submitting claims for reimbursement from these accounts.   

You will want to share these tips with your employees!

1. What is substantiation?

For participants to receive tax-favored treatment on these medical expenses, they must be qualified under Internal Revenue Service (IRS) rules and generally reviewed by a third party. These administrators will review each claim and decide if the expense qualifies for this special tax treatment or not.

2. What are the substantiation requirements for pre-tax claims?

Does your medical expense meet the standard definition of treating or alleviating a specific disease or condition? Your substantiation material should be clear in outlining your incurred service or expense so that the administrator can quickly and accurately approve your claim.

Proper substantiation material can include the following:

  • Explanation of Benefits (EOB).
  • Statements from the insurance carrier and a receipt.
  • Doctor’s note.
  • Rx slip stating date of service, dollar amount, and a brief description of the service.

Note: Voided checks, credit card statements, and balance due statements are generally not valid forms of substantiation. 

3. Are there requirements for substantiation at year-end?

Most health FSA accounts follow general guidelines; however, it is encouraged to speak to your HR administrator for details on your plan. It is important for you to know the last day of your plan year to submit expenses.

Health FSAs have two potential options: A $550 rollover or a Grace Period. Here’s the difference between the two that you can explain to your employees.

  • Rollover Option
    • If your employer has adopted the rollover option, then you may rollover up to $550 of unused Health FSA funds into the next plan year. Check your balance to see if you will have more than $550 remaining in this account. If so, you will want to plan accordingly to spend down those dollars to at or below $550 prior to year-end.
  • Grace Period Option
    • If your employer has adopted the Grace Period, then you will be given additional time (generally two months and 15 days after the plan year ends) to incur expenses and be reimbursed from your account. Any previous year’s balance can be rolled into the Grace Period.

One note regarding a Run-Out Period: Consider this your last chance to submit claims from the previous year.  Following the last day of the Plan Year or Grace Period, your employer may allow a run-out period for additional time to submit claims incurred from the previous Plan Year. Once the Run-Out Period has ended, you will not be able to submit any additional claims from the prior year.     

4. What items should be considered for year-end prep for pre-tax benefits?

Two things are very important for your employees to consider:

  1. Review your current account balance.
  2. Check your deadlines for the last day to submit claims.

Have your employees start their planning process prior to open enrollment to determine how much they spent this year in expenses and if they might expect the same for next year. Participation in these accounts makes it much easier to project expenses in the coming year.

5. Minimize forfeiting unused money.

If employees still have a large balance in their account, they can use these easy steps to minimize forfeiting unused amounts:

  1. Log in to the insurance carrier’s portal and review previously posted EOB statements to ensure that all have been submitted for reimbursement.
  2. Review previous medical provider’s statements to see if a submission was missed.
  3. Pharmacies keep records of filled prescriptions; have all been submitted that one can?
  4. Putting off teeth cleaning or maybe that eye exam? Get it scheduled and take advantage of those pre-tax savings now.

To further assist your employees in ensuring unused pre-tax benefit funds don’t go to waste, check out our previous blog specific to the FSA pre-tax benefit titled, “5 Clever Ways to Make the Most Out of Your FSA Funds.

6. How can PrimePay help?

PrimePay helps with the administration of pre-tax benefits for your company, including HRAs, HSAs, and FSAs. When you choose PrimePay’s pre-tax benefit plan administration, you receive a dedicated service team, access to resources, automated claims processing, and a PrimePay debit card and mobile app.

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Disclaimer: Please note that this is not all inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.  Consult your own legal advisor regarding specific application of the information to your own plan.

Editor’s Note: This post was originally published in November 2018 and has been updated for freshness, accuracy, and comprehensiveness.