Beth Davis didn’t aggressively use her family’s health flexible spending account (FSA) until last year, when her 8-year-old son was diagnosed with enthesitis-related juvenile idiopathic arthritis.

A series of scary months and frustrating referrals had led to Bruce’s diagnosis, in April 2010. Shortly after, Davis learned that the family had already exhausted the $1,000 reserved in their FSA.

“I ran out in June,” reports Davis. The Florida mother, who got the news when she tried to fill one of her own prescriptions, plans to earmark more for the account next year.

The tax-savings vehicle, which allows an employee to deduct a specific amount each paycheck, helps to defray medical costs and thus is particularly helpful for those coping with a serious diagnosis like juvenile arthritis (JA). According to benefits administrator Ceridian Corp., the accounts can save users an average of 30 percent annually. Even so, employees are understandably cautious about how much they deduct from their paycheck; any unused money is forfeited at year’s end.

But for those who can afford to deduct money, the savings can be vital, says Marty Rosen, executive vice president and co-founder of Health Advocate Inc., an employer-provided service which assists employees in navigating insurance and other health-related issues. “Especially for someone with a chronic illness, it’s almost a no-brainer,” Rosen says regarding the accounts. “It would be almost like burning money if you didn’t do it.”

Beginning next year, though, the Davis family and others living with JA will have to stay on top of several new changes, implemented as part of the health reform law, the Patient Protection and Affordable Care Act.

Under the first change, effective January 1, a doctor’s prescription will be required to obtain reimbursement through the accounts for over-the-counter (OTC) medications, such as ibuprofen and proton pump inhibitors. Families who heavily rely on FSAs also may want to consider some pre-planning steps, if they typically set aside several thousand or more in the accounts. Starting in 2013, no more than $2,500 can be reserved annually. 

Assessing impact

Users of health FSAs tend to be married with children and fall within a middle-income bracket, with a median income of $50,000 to $70,000, according to data from SHPS, a benefits administrator.

Typically, one-fourth of FSA dollars are spent on medications, either prescription or over-the-counter, according to SHPS data. Only 20 percent of FSA users might be impacted by the impending $2,500 cap, but they are more likely to have significant health issues.