An Easier FSA

Flexible spending accounts (FSAs) -- salary set-asides that let workers pay for certain medical expenses with pretax dollars -- never have been very popular. Although about a third of employers offer the benefit, which can save employees 10 to 35 cents on every dollar contributed, most workers don't sign up. Many don't like the feeling that FSAs force you to pay twice -- first through a payroll deduction and then when you incur the expense. Another sore point: having to submit receipts showing that the purchase was qualified, then hoping the expense is approved and finally waiting for a reimbursement check.

Now FSA debit cards are making the process easier -- and almost paperless -- by pulling funds directly from an FSA participant's account. The idea is catching on. Celent, a Boston financial services consulting firm, says card use has grown steadily since 2005. At Georgetown University, chief benefits officer Charles DeSantis credits a nearly 20 percent jump in FSA participation among the university's 3,800 employees to the introduction of a debit card this year.

"This is something that helps give employees immediate access to their dollars," he said.

Instant approval The Internal Revenue Service is requiring all stores that accept FSA debit cards to limit use of the card to FSA-approved purchases such as prescription drugs, cough syrup and allergy medicine. The system, so far in place at only a few chains including Walgreens and Wal-Mart, will reduce the need for employees to submit receipts, says Heffy Provost, a vice president at ADP, a large payroll processor that sponsors an FSA debit card.

Some card vendors say there's no need to wait. The "Benny" card, marketed by Evolution Benefits and used by companies including WebMD, can automatically verify prescription purchases when the card is swiped, so there's no need to submit receipts, says Evolution's president, Robert Patricelli. Benny cards also can be programmed to tap more than one type of account -- an FSA and a health savings account (used to pay most medical expenses in a high-deductible insurance plan), for instance.

The catch Don't throw out those receipts just yet. Even if your employer or benefits administrator doesn't ask to see them, the IRS might. And keep track of your account balance. FSA funds are "use or lose" deductions; about a quarter of employees end the year with money in their account, according to benefits administrator Ceridian. Speaking of balances, now may be a good time to refill prescriptions or get new eyeglasses. In accordance with a 2005 IRS ruling, some employers are giving workers until mid-March to spend last year's FSA contributions.

-- Rita Zeidner