a little rant about FSA's...

This might be considered off topic from the kinds of things I usually rant about, but today I got a letter from the administrator of my FSA account that irritated me a little bit.

To start off, let me explain what an FSA is for those that are living under a rock and don’t pay attention when their employer talks about benefits each year. Flexible Spending Accounts are pre-tax allotments you set up from your own portion of your pay. It is your money, just not taxed. You decide how much to set aside each payday and can use it for anything that would otherwise be a tax-deductable medical expense (and childcare I believe). The only difference is that you don’t need to spend more than an arbitrary minimum in order for it to be deductable. Even if you only set aside $500 that will be deducted from your taxable income regardless. I think otherwise it is 2500 or 3500. I’m not sure exactly and it is likely to change from year to year.

That aside, I decided to do it this year mostly because I have an ongoing condition that requires frequent doctors visits and expensive medications. I thought this would be a good way to spread the expense of the intial deductibles out over the whole year. If my insurance offered a copay-only option I probably wouldn’t even have bothered with this.

So I started getting letters a few weeks ago called "substantiation requests." These letters from my insurance companies’ designee asked for information about each transaction, the physician/practitioner, date of service, type of expense, etc. So I wrote a letter and broke it down for them. Obviously not all eligible items are necessarily going to require you to go see your doctor. Some of them are self-explanatory. For example a Lens Crafters purchase for over $500 is probably for glasses! Otherwise stores that sell both eligible items and non-eligible items are required to be able to separate the purchases at check out or else the card won’t work there. At least that is what their literature said when I thoroughly read through everything before signing up for this. In other words, if Safeway cannot show you your grocery and pharmacy bill separately at check out, the card will not work at Safeway at all. That should make it easy to distinguish a tax-exempt purchase from a non-tax exempt purchase, so why do we have to "substantiate" these expenses every time we use the card?

Anyway, they responded to my letter just now by saying everything was declared non-eligible and I now owe the entire balance within 30 days. Needless to say I am pissed. I gave them all the information. Now they want to see the receipts. They didn’t ask for the receipts in the first place and my guess is this is what they do to further audit certain accounts. All I can say is if they don’t expect us to use the money in these accounts they shouldn’t encourage us to create them in the first place. I’ve looked at the list of eligible expenses on the IRS website (it is the same for these FSA’s as it is for ordinary tax deductions with one or two minor exceptions, such as FSA expenses must occur this year, but you can deduct bills paid this year for services performed last year the old fashioned way). So I don’t see why I should have to substantiate to this company things I would otherwise deduct on my taxes without scrutiny. I’ve never been audited by the IRS and if I were, I would expect the experience to be much more tolerable. "Hello Mr Taxman, nice to meet you, come sit, coffee?" "Ok, here are all of my receipts, would you like a scone?" "The bathroom is down the hall." "Let me know when you are finished."

I have the receipts so it’s all good. I was at least smart enough to pay attention to the information I was signing and know that I need to keep them but it’s the principle notion of having to justify all of your medical expenses to this bank that clearly just wants to make it less convenient for you to actually use your own money that they solicited for you to set aside in their program as a convenience service. Does anyone else see the irony?

b