Having leftover medical bills from the prior year can be frustrating when trying to manage healthcare finances. Many people wonder if they can use their current FSA funds to pay these outstanding expenses. Unfortunately FSAs have strict rules regarding which year’s funds can cover which expenses.
This article provides an overview of using FSAs to pay prior year medical bills We’ll clarify the guidelines and outline your options if you end up with bills lagging into the next plan year
FSA Basics
First, let’s review how FSAs work. A Flexible Spending Account (FSA) allows you to set aside pre-tax dollars from your paycheck to pay for eligible healthcare costs throughout the year. Two common types are:
-
Healthcare FSA – For medical expenses like doctor visits, prescriptions, dental work, vision care, etc.
-
Dependent Care FSA – For childcare and elder care expenses while you are at work.
You elect an annual contribution amount, which is deducted evenly from each paycheck. The full election amount is available on day one to reimburse qualified expenses you pay out-of-pocket during the plan year.
FSAs offer triple tax savings:
- Contributions are made pre-tax.
- Reimbursements are tax-free.
- You avoid paying FICA taxes on contributions.
The catch is that FSAs have a “use it or lose it” provision. Any unused balance at the end of the plan year is forfeited. You must incur eligible expenses by the end of the plan year and submit claims by the filing deadline to empty your account each year.
The Issue With Prior Year Bills
FSAs have strict rules that funds can only be used for expenses incurred within the current plan year. The date of service or purchase determines the applicable year, not the date you are billed or pay the amount due.
For example, let’s say you have a $500 health FSA through your employer’s cafeteria plan. The 2022 plan year ends on December 31, 2022.
You receive a bill in January 2023 for a doctor visit that occurred in December 2022. Even though you are billed in 2023, you can use your 2022 FSA to reimburse this expense because the date of service was within the 2022 plan year.
However, if the doctor visit occurred in November or earlier in 2022 but you don’t receive the bill until 2023, you cannot use your 2023 FSA to pay this prior year expense. This bill should have been submitted to your 2022 FSA before the claims filing deadline.
Options for Managing Prior Year Medical Bills
If you are unable to submit a prior year medical expense for reimbursement from the corresponding FSA in time, you have a few options:
-
Pay out-of-pocket – This allows you to pay the bill in a timely manner, but you lose the FSA tax savings. Make sure to plan carefully the following year to use all your FSA funds within the deadline.
-
Appeal for an exception – Some plans allow you to submit claims late or apply funds from the current year if you provide sufficient documentation and a reasonable explanation for the late billing or submission. This isn’t guaranteed but is worth exploring.
-
Set up a payment plan – Ask the healthcare provider if you can arrange installment payments spread out over time. This prevents the balance from going to collections while giving you time to pay it from your paycheck.
-
Negotiate a discount – Request an adjustment or write-off of part of the balance if you pay in full by a certain date. Many providers are willing to reduce balances for prompt payment or financial hardship.
No matter which option you pursue, communicate proactively with medical providers to prevent outstanding balances from being sent to debt collectors. Most importantly, stay current going forward – use your FSA funds fully each year so you don’t face this issue again next year.
Avoiding Future Hassles from Prior Year Bills
While you can’t change past billing issues, you can take proactive steps to avoid this problem in the future:
-
Review all bills and EOBs carefully to ensure proper processing by your health insurance plan. Dispute any discrepancies promptly to prevent outstanding balances.
-
Stay on top of bills from each provider and confirm payment has been made from your FSA. Set reminders to follow up if bills are still outstanding as the plan year ends.
-
If allowed, submit conditional FSA claims for planned expenses early in the year. This reserves funds to pay the balance when officially billed later.
-
Check your FSA balance and claims deadlines monthly. Try to incur additional qualified expenses at year end to deplete your account if still holding a balance.
-
Save all medical expense documentation until you confirm the corresponding FSA reimbursement. These records will be essential if you need to appeal a denial due to late submission.
Plan Ahead to Maximize FSAs
The key is planning ahead and tracking expenses carefully all year long when using an FSA. Know your plan details like contribution maximums, eligible expenses, deadlines, and use-it-or-lose it rules.
Sign up to receive notifications when your FSA statements and EOBs are available. Review these documents as soon as possible to identify issues early. Document everything thoroughly along the way.
Most importantly, be proactive communicating with healthcare providers and your FSA administrator. This will help resolve any billing or reimbursement issues promptly so prior year balances can be addressed before forfeiting your hard-earned funds.
With proper diligence, you can avoid the headache of having to pay lingering medical bills out-of-pocket. Make the most of your FSA by staying organized and on top of deadlines to maximize the tax savings each year.
Creative ways to use your Flexible Spending Account before the year-end deadline
FAQ
Can you pay previous year medical bills with FSA?
You generally must use the money in an FSA within the plan year. But your boss might give you one of two choices: it can give you an extra two and a half months to use the money in your FSA. It can allow you to carry over up to $660 per year to use in the following year.
Can I use 2024 FSA for 2023 expenses?
Like, you can’t use FSA funds from the current Plan Year to pay for claims that happened in a previous Plan Year.
Is FSA based on date of service or payment?
We need a third-party statement from the provider that lists the patient’s name and contact information, the date of service (not the date of payment), a description of the services provided, and your portion of the expense. This will help us make sure that the expense is covered.
Can I use my FSA to pay medical debt?
Medical bills are often charged to credit cards to either spread out the cost or get a little something back in the form of rewards. But can you use a tax-advantaged medical savings account, like an HSA or FSA, to pay off that medical credit card debt? In short, yes, but make sure you keep good records.
Can I use my FSA to pay bills from prior years?
New comments cannot be posted and votes cannot be cast. No, you can’t use this year’s FSA to pay bills from prior years. I wouldn’t call it trouble, but you’ll be taxed on the amount you’ve spent on prior year bills. No. The FSA year and the medical expense service date must match, i. e. only 2022’s FSA can pay for expenses incurred in 2022.
Can I use my health care FSA to pay medical expenses?
Yes, the FSA does not require that your dependents be covered under your health insurance plan. Any eligible health care costs for your family can be paid for with your account, no matter what health insurance plan they have. 4. Can I use my Health Care FSA to reimburse outstanding medical expenses from the prior year?.
Can I use leftover FSA money to pay medical bills?
If your employer gives you a flexible spending account (FSA), you may be wondering if you can use the money left over to pay medical bills from last year. This is the bad news: FSA dollars can only be used for costs that happened during the current plan year.
Can I use my 2022 FSA to pay medical expenses?
No, you can’t use this year’s FSA to pay bills from prior years. I wouldn’t call it trouble, but you’ll be taxed on the amount you’ve spent on prior year bills. No. The FSA year and the medical expense service date must match, i. e. only 2022’s FSA can pay for expenses incurred in 2022.
Can I extend my FSA If I don’t pay medical expenses?
FSAs are “use-it-or-lose-it” accounts, but companies may come up with ways to give you more time to spend the money you still have. One option is called a Grace Period. At the end of the plan year, your employer may give you up to two and a half months to submit eligible medical bills. Another option is called a Carryover.
When are medical expenses incurred in an FSA plan?
Expenses must be incurred during the FSA plan year. IRS rules say that costs happen when the employee (or the employee’s spouse or dependents) receives the medical care that leads to the medical expenses, not when the employee is officially billed, charged for, or pays for the medical care.” “.
