Can an FSA really save me money?

Thinking about electing a flexible spending account during Open Enrollment for your 2009 benefits? Want to know if it can really save you money?

FSAs are used to pay for out-of-pocket health care or dependent care expenses. Money is deducted from your paycheck, before it is taxed, and is available for you to use for health care or dependent care expenses. This lowers your taxable income and provides immediate access to an account to cover out-of-pocket costs.

Elect FSAs during Open Enrollment

Don’t forget that you must annually elect to contribute to an FSA during Open Enrollment (through Nov. 15). The health care FSA can be used for out-of-pocket medical, dental, and vision expenses for you and your immediate family members. A dependent care FSA is used to cover the cost of child care for your dependents under age 13 while you and your spouse work or attend school.

While the Internal Revenue Service (IRS) allows employees to take pretax deductions, you must use all funds set aside for an FSA, or forfeit any contributions not used by Dec. 31, 2009. UPMC uses the IRS “grace period,” which extends to March 15, 2010 as the timeframe to incur eligible health care expenses and use any remaining balance.

If you want to learn more about FSAs, visit the Open Enrollment Benefits section of Infonet at infonet.upmc.com/ OpenEnrollment/FSAoverview.htm.

Let’s see how Paul and Jenny are able to save money by electing an FSA.

Paul and Jenny are both employed and have two children. Their combined annual income is $96,000, and they file a joint income tax return. Paul is employed at UPMC and his wife and children are covered under the UPMC Advantage PPO and United Concordia Premium Dental PPO.

Paul estimates that during 2009 his family’s out-of-pocket health care expenses will be:

• 6 preventive care doctor office visits ($5 copayment)	$30
• 6 sick office visits ($20 copayment)	$120
• 15 generic prescriptions ($15 copayment)	$225
• Dental expenses for Jenny	$500

(Two crowns at $1,000; Premium Dental PPO will pay $500 for an in-network provider.)

• Glasses and contact lenses, Paul and Jenny

$500

(Estimate of their out-of-pocket expenses after using Standard Vision coverage included in the UPMC Advantage PPO.)

• Contact lens solutions and over-the-counter medications

$300

(allergy medicine, cold medicine, pain relievers)

• Total out-of-pocket medical expenses

$1,675

(allergy medicine, cold medicine, pain relievers)

Paul wants to be conservative, so he estimates their out-of-pocket medical expenses for the year will total $1,600. He enrolls in the MyFlex Advantage Health Care FSA.

Paul and Jenny’s Estimated Savings*

	Without an FSA	With an FSA
Gross Annual Income	$96,000	$96,000
Total Annual Health Care FSA Contribution	$0	$1,600
Total Annual Dependent Care FSA Contribution	$0	$0
Total Taxable Income	$96,000	$94,400
Federal & Social Security Tax Paid	$24,191	$23,669
After-Tax Dollars Spent on Health Care and/or Dependent Care Expenses	$1,600	$0
Net Annual Income	$70,209	$70,731
Total Estimated Savings		$522

Paul and Jenny were able to cut their net out-of-pocket expenses by more than 32 percent by reducing their taxes through use of an FSA.

* This savings scenario is for illustrative purposes only and is an estimate. Actual tax savings may vary depending on factors such as state and local tax withholding laws, filing status, and other pretax deductions.

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