Summary

This conversation provides an in-depth overview of the new Flexible Spending Account (FSA) program being introduced by the Department of Defense (DOD) for military service members. The hosts discuss the benefits, eligible expenses, and key differences between a Healthcare FSAs and Health Savings Accounts (HSAs). They also explore who might benefit most from the Healthcare FSA, how to estimate out-of-pocket expenses, and the importance of understanding the program’s details for effective financial planning. Resources for further information are also highlighted.

Chapters

00:00 Introduction to the Flexible Spending Account
01:42 Understanding Flexible Spending Accounts
05:01 FSA vs HSA: Key Differences
07:49 Details of the New DOD Healthcare FSA Program
10:28 Who Should Consider the Healthcare FSA?
15:22 Estimating Out-of-Pocket Expenses
18:30 FSA in the Context of Financial Planning
21:08 Resources and Final Thoughts Takeaways

Schedule a consultation with Mike: https://nextmissionfinancialplanning.com/contact/

Schedule a consultation with Amy: https://www.instarfp.com/contact

 

TRANSCRIPT

Mike (00:03)
EOD is rolling out a new program called the Flexible Spending Account for Health Care that will allow service members to contribute directly from their paycheck into an account that they can later use to fund medical expenses like co-pays and other out-of-pocket medical expenses. So we’re going to be talking about that today and seeing who it’s really right for, talking about the specifics of the program.

Amy (00:04)
DOD is rolling out a new program called the Flexible Spending Account for Health Care that will allow service members to contribute directly from their paycheck into an account that they can later use to fund medical expenses like co-pays and other out-of-pocket medical expenses. We’re going to be talking about that today and seeing who it’s really right for, talking about the specifics of the program.

Mike (01:13)
So, Amy, today we’re going to be talking about the flexible spending account that DOD is going to release in the spring of 2025. think the target date is the March timeframe. And we just want to give service members an overview of what that is and who that may be appropriate for and some of the things you need to consider before you decide to participate or not participate in the program.

Amy (01:14)
So Amy, today we’re going to be talking about the flexible spending account that DOD is going to release in the spring of 2025. think the target date is the March timeframe. And we just want to give service members an overview of what that is and who that may be appropriate for and some of the things you need to consider before you decide to participate or not participate in the program.

Mike (01:42)
So Amy, what is a flexible spending account?

Amy (01:43)
So Amy, what is a flexible spending account?

Yeah, so first I’ll say that I’m excited about this because, you know, there’s, don’t have a ton of out of pocket costs as service members usually. Sometimes as retirees, but I’m excited about it because it does come up and it is a tax advantage.

The medical flexible spending account is, as Mike mentioned in the introduction, it’s a way to set aside money pre-tax. So you don’t pay tax on the money when it comes out and you don’t pay tax on it. When it comes out of your paycheck, you don’t pay tax on it either when you use it, as long as you’re using it for qualified medical expenses. So that’s the biggest thing. So it’s got a tax benefit for it as long as you’re using it for those

eligible, there’s qualified medical expenses. So Mike, how about if you go through the eligible expenses?

So these are governed by the IRS. FSAs have been around for a long time. It’s really the DUD is just finally allowing this for the military members. so it’s things like your medical expenses, your co-pays,

Mike (02:45)
Sure. So these are governed by the IRS. FSAs have been around for a long time. It’s really that DOD is just finally allowing this for the military members. so it’s things like your medical expenses, your co-pays, deductibles,

Amy (03:06)
inductables, anything like that. It can be dental expenses. So exams, cleanings, cavities, all of those things, even braces.

Mike (03:06)
anything like that. It can be dental expenses. So exams, cleanings, cavities, all of those things, even braces.

Amy (03:15)
It can be your vision expenses, glasses, contacts, the laser eye surgery. It can also be things like just wellness therapy, physical therapy, chiropractor, acupuncture.

Mike (03:16)
It can be your vision expenses, glasses, contacts, the laser eye surgery. It can also be things like just wellness therapy, physical therapy, chiropractor, acupuncture.

And then one thing you can also use it for is prescriptions and over-the-counter medications. So those are things like maybe you need Band-Aids or…

Amy (03:33)
And then one thing you can also use it for is prescriptions and over-the-counter medications. So those are things like, you know, maybe you need bandages or,

Mike (03:45)
you know, a blood pressure monitor. So anything that’s really related to health care, you want to make sure, but you know, those type of things are what you can generally use an FSA on.

Amy (03:45)
you know, a blood pressure monitor. So anything that’s really related to healthcare, you want to make sure, but, you know, those types of things are what you can generally use an FSA on. Yeah, exactly. And that’s, and that’s why, you know, for so long,

service members in the event that you did have out of pocket expenses. And we did, you you always had a few nominal expenses, whether you’re picking up, you know, BB Tylenol out of pocket or something. So it’s nice to have the tax advantage of the FSA now. But, you know, there’s a, there’s a little bit of confusion between a flexible savings account and a health savings account. And so it’s important to delineate those two. So the flexible savings account, so the,

type of account that service members are going to have access to in March of 2025. When you put the money in, you have to use it in the year in which it comes out. So if this program is going to launch in March, whatever money goes in this year in 2025, you have to use by the end of the year, except for a small amount that can be carried over around $660 that can be carried over from one year to the next.

The health savings account is actually something where you can put money in pre-tax. You actually can invest it, whereas the FSA, cannot invest the funds. They just sit there. The HSAs, you can invest the funds. So those funds grow tax-free. And then you can take them out. You can take the funds out tax-free of the health savings account. But a major difference is with the HSA, the expense doesn’t have to be in the same year in which the contribution was made.

So lots more flexibility with the HSA. However, in order to have access to an HSA, you have to have something called a high deductible healthcare plan, which TRICARE is not. So for the most part, service members are not going to have access to an HSA, particularly if they retire. So if you retire and you keep TRICARE, and then you switch to TRICARE for life, you will not be able to contribute to an HSA.

unless essentially you give up TRICARE, which I just don’t think that the tax benefit of an HSA would, you know, offset the value of TRICARE. mean, everybody’s situation is different. That’s not a recommendation specific to you. But it would be a stretch to think that giving up TRICARE in favor of an HSA would be to your advantage. Again, not specific advice.

Mike, did I miss anything about the comparison between FSA and HSA? No, I think you hit it. That’s really important that if you’ve got TRICARE, you don’t get to participate in an HSA. You probably get that question often. I do once people retire because they are very useful accounts. really, like you said, most of the time,

Mike (06:29)
No, I think you hit it. And that’s really important that if you’ve got Tricare, you don’t get to participate in an HSA. You probably get that question often. do. Once people retire, because they are very useful accounts. really, like you said, most of the time, Tricare

Amy (06:53)
Bridecare is better because basically a high deductible plan means that you’re paying

Mike (06:53)
is better because basically a high deductible plan means that you’re paying

a significant amount of money upfront. You know, you’ve got that first, you know, several thousand dollars of expenses, you know, to participate in an HSA. So BrightCare has very low deductibles and that so it really, like

Amy (06:59)
a significant amount of money upfront. You you’ve got that first, you know, several thousand dollars of expenses, you know, to participate in an HSA. So Bridecare has very low deductibles and that so it really

Mike (07:21)
you said, probably not something you want to do unless there’s some very unique circumstance around that.

Amy (07:21)
Like you said, probably not something you want to do unless there’s some very unique circumstance around

Mike (07:29)
So.

Amy (07:29)
that. So. Yeah, exactly. So Mike, tell us more about specific. the new DOD FSA plan. So just the specific details that are going to apply to this program that’s rolling out in March. Sure. So

Mike (07:49)
Here, so like

you said, March of 2025, I haven’t seen a whole lot yet on it. You know, we’re recording this a little early, so hopefully by the time this comes out, there’s more info that members are receiving. But it’s going to be administered through the FSA Feds website, because like I said, the civilian side has had this ability for a while.

Amy (07:51)
Like you said, March of 2025, I haven’t seen a whole lot yet on it. And, you know, we’re recording this a little early. So hopefully by the time this comes out, there’s more info that members are receiving. But it’s going to be administered through the FSA FEDS website. Because like I said, the civilian side has had this ability for a

while.

Mike (08:18)
So this just allows military now to participate. It’s for active duty members and reservists if they’re on active duty. And you’ll be able to contribute anywhere between $100 and $3,300. And then if you’re joint military, military married to military.

Amy (08:18)
So this just allows military now to participate. It’s for active duty members and reservists if they’re on active duty. And you’ll be able to contribute anywhere between $100 and $3,300. And then if you’re joint military, military, you know, married to military.

Mike (08:45)
you

can each have an account. you really could get up to $6,600 at that point. Like we said, it’s going to go live in March of 2025. And the one important thing is you’ll also use that FSAFEDS website to get reimbursed for any of your expenses. So when you have an eligible expense, you’ll keep that receipt. You’ll have to submit that.

Amy (08:45)
you know, you can each have an account. you really could get up to $6,600 at that point. You know, like we said, it’s going to go live in March of 2025. And, you know, the one important thing is you’ll also use that FSA FEDS website to get reimbursed for any of your expenses. So when you have an eligible expense, you’ll keep that receipt. You’ll have to submit

that.

Mike (09:14)
and then you’ll get reimbursed at that point. And then finally, like you said, you can roll over. It’s basically you that are using it for the year, except you are able to roll over up to $660 per year for the next year. And that is typically indexed to inflation, so that could change over time. But for 2025, it’s $660.

Amy (09:15)
and then you’ll get reimbursed at that point. And then finally, like you said, you can roll over. It’s basically you that are using it for the year, except you are able to roll over up to $660 per year for the next year. And that is typically indexed to inflation, so that could change over time. But for 2025, it’s $660.

One thing I just want to jump in and add to this, you know, use it or lose it concept is if you plan to leave service or if you’re a reservist who has been mobilized to active duty and your active duty time is going to end, your year might be cut short. So it is, it’s not something that you get to keep beyond when you’re in service. So it’s just important to keep in mind.

that if you’re gonna have a short year for some reason, that you might not want to use your full year of expenses to estimate what you’re gonna put in, you might need to cut back because your year is short.

Mike (10:28)
Yeah, that’s a great point. So Amy, let’s talk a little bit on the financial planning side on is this a good deal? Who’s it a good deal for? What are some things to make sure you’re thinking about before you do this? So who is this best for?

Amy (10:29)
Yeah, that’s a great point. So Amy, let’s talk a little bit on the financial planning side on is this a good deal? Who’s in a good deal for you know, what are some things to make sure you’re you know thinking about before you do this? So who? Who is this best

for? Yeah, this this.

FSAs are good, particularly for families. So if you’re a single service member, you don’t have any dependents, this may not be such a great deal for you just because you’re getting all your care on post or on base. When you get referred out, you’re still getting basically care at no cost. You don’t have any out of pocket costs. might have, if you prefer to wear contact lenses, if you have

different over-the-counter things that the military doesn’t cover for you, maybe. But probably they’re very minimal out-of-pocket expenses. you know, maybe not such a great deal for a single service member. But if you’re a service member and you have maybe lots of dependents or a dependent who has a lot of medical care needs, and as a result, you’ve chosen to use either TRICARE Select or

You’re experiencing a lot of co-pays, you know, in order to access the kind of care that they need, or you’re paying out of pocket for the kind of care that they need. It could be a really great deal. But what should drive all of this is what you typically spend. So what is your average out of pocket medical expense, dental, vision expense for your family? That’s generally what should sort of form the basis of your decision to participate.

in this program and to what extent you might participate.

Mike (12:27)
Yeah, great points. Yeah, the other thing I’ll say is it’s going to be a better deal for folks who are in higher tax brackets. Because again, you’re pulling that money out. It’s not going to get taxed that bracket. It’s kind of like the traditional IRA, where the money is going into the account before the IRS taxes it. So if you’re in

Amy (12:27)
Yeah, great points. Yeah, the other thing I’ll say is, you know, it’s going to be a better deal for folks who are in higher tax brackets, because again, you’re pulling that money out, it’s not going to get taxed at that bracket. It’s kind of like the additional IRA where the money is going into the account before the IRS taxes it. So, you know, if you’re in

Mike (12:56)
the

lowest tax bracket, like you said, single service member, you’ll still get a benefit. But again, you probably don’t want to over contribute. because it is use it or lose it. You hear of the December run to CVS for people with their flexible spending account, like, I’ve got to buy, you know.

Amy (12:56)
the lowest tax bracket, like you said, single service member, you know, you’ll still get a benefit, but again, you probably don’t want to over contribute. because it is use it or lose it. You hear of, you know, the December run the CVS for people with their flexible spending account, like, I’ve got to buy, you

know.

Mike (13:24)
$1,000 worth of band-aids and you know vitamins and those type of things so it’s it’s a good deal but if you either lose the money or You know are buying stuff that you really don’t need Then then it Probably isn’t a good deal. So, you know, just make sure like Amy said you’re you’re really basing it on how much you spend

Amy (13:24)
a thousand dollars worth of band-aids and vitamins and those type of things. So it’s a good deal. But if you either lose the money or buying stuff that you really don’t need, then it probably isn’t a good deal. just make sure, like Amy said, you’re really basing it on how much you spend.

Mike (13:54)
yearly on these type of things and then consider it.

Amy (13:54)
yearly on these type of things and then consider

it. Yeah. I mean, it’s, and there’s not, you know, the, there is an administrative cost. I’ll call it an admin cost to this. Right. So, you know, you put the money in the administrative cost is the time that it’s going to take you to file reimbursement. So go, you know, going back to Mike’s point that if you’re in a higher tax bracket,

you experienced greater savings. So, you know, two single service members, right? One is in, you know, a higher tax bracket, one is in a lower tax bracket. You put $100 in, the person in the lower bracket, you know, might get, let’s just say a $10 benefit. The person in the higher bracket might get a $20 benefit. You know, the trade-off is the amount of time, because it’s gonna take you the same amount of time to put in that reimbursement request. So sometimes you just kind of have to…

Think about how you want to use your time and trade off money versus time and vice versa. Yeah, there’s definitely the, I like to call it the return on hassle. know, we talk about other returns and so if you are not somebody who’s going to want to deal with receipts and file those and, you know, really make sure you’re taking advantage of it, then

Mike (14:58)
Yeah, there’s definitely the, I like to call it the return on hassle. You know, we talk about other returns and so if you are not somebody who’s going to want to deal with receipts and file those and, you know, really make sure you’re taking advantage of it, then,

you know, maybe it’s not worth the.

Amy (15:22)
you know, maybe it’s not worth

the small amount of savings that you get, like you said, and time that you have to do that. So. Right. So, I mean, we’ve talked about, you know, how important it is to have a good feel for what your normal out of pocket expenses are for the year. Most of most of us probably haven’t spent a lot of time tracking that. Do you have any tips for folks on how to estimate?

Mike (15:25)
small amount of savings that you get, like you said, and time that you have to do that.

Amy (15:50)
an annual out of pocket cost.

Mike (15:54)
Yeah, I mean, hopefully you’re tracking your spending in some manner and can go back and find that. But I would say first start looking for your bigger expenses. So, you know, like you said, if you have a family, what are the dental costs and, you know, the vision costs and things that could end add up? You know, maybe.

Amy (15:55)
Yeah, I mean, hopefully you’re tracking your spending in some manner and can go back and find that. But I would say first start looking for your bigger expenses. So, you know, like you said, if you have a family, what are the dental costs and, you know, the vision costs and things that could end add up? You know,

maybe.

Mike (16:22)
significantly

Amy (16:23)
significantly depending on where they’re getting seen and you know start with that estimate and then you know maybe participate at a lower level that first year and then you know continue to monitor it make sure you’re using it and you know go go at that point is probably what I’d suggest to folks.

Mike (16:23)
depending on where they’re getting seen and you know start with that estimate and then you know maybe participate at a lower level that first year and then you know continue to monitor it make sure you’re using it and you know go go at that point is probably what I’d suggest to folks.

Amy (16:51)
Yeah, for sure. And that makes a lot of sense, you know, just start with the big stuff, right? Because again, going back to return on hassle, which I really like that concept. If you really are only spending a little bit of money out of pocket, is it really worth your hassle to go, you know, save yourself 10 bucks, 20 bucks, something like that. So start with the big stuff. Start with, you know, I’ll also say sometimes you can look forward and see.

You know, for example, if one or more of your children are going to be in braces, how much is going to be covered versus not covered in that case? And a lot of times it’s not a lot that’s going to be covered. What if, you know, you know that you’re going to start wearing contact lenses? So things that you know that might come up, they’re not normal expenses, but they’re pretty likely to come up in this year. That’s another thing that you should add to your…

to your estimate paying close attention to if you expect it and then it doesn’t happen, you still have to use or lose that money. So under-contributing is probably a good idea, at least in the first year.

Mike (18:06)
Yeah, I wish it would have been available when I put my daughter through braces. It would have been nice.

Amy (18:06)
Yeah, I wish it would have been available when I put my daughter through braces. It would have been nice.

For sure. Now, so Mike, when you think about how an FSA fits in somebody’s overall financial plan, can you just give us some thoughts around how it might fit and work with other strategies? Yeah, it’s really just another tool in the toolkit.

Mike (18:30)
Yeah, it’s really just another tool in the toolkit,

Amy (18:34)
another account you can use to potentially reduce, taxes and like you hit on the, the nice thing is that it’s pre-tax and you know, it comes out tax free also. So, unlike the traditional IRA where you got to worry, you know, down the road that you’re still going to have to pay taxes on it. This

Mike (18:34)
another account you can use to potentially reduce taxes. like you hit on, the nice thing is that it’s pre-tax and it comes out tax-free also. So unlike the traditional IRA where you got to worry down the road that you’re still going to have to pay taxes on it, this

is just tax

Amy (19:00)
is just, you know,

tax-free money as long as you’re using it for the eligible expenses. So, yeah, it’s a tool. Again, I don’t think the numbers we’re talking about, even if you max it out $3,300 and had those expenses each year, you’re saving a few hundred dollars, maybe a thousand dollars, depending on your actual tax bracket.

Mike (19:02)
free money as long as you’re using it for the eligible expenses. yeah, it’s a tool. know, again, I don’t think the numbers we’re talking about, even if you max it out, $3,300 and had those expenses each year. You know, you’re saving a few hundred dollars, maybe a thousand dollars, depending on your actual tax bracket. But

So it’s not something

Amy (19:30)
So it’s not…

something that’s gonna drastically move the needle, it’s something you can do if you will use it. It’s just another tool. How about

Mike (19:31)
that’s gonna drastically move the needle, but it’s something you can do if you will use it. It’s just another tool. How about you?

Amy (19:44)
you? Agree, completely agree. The key to this is, and I hear this a lot, you probably hear this a lot too, I’m gonna go buy this and have this tax write off. And that’s like a really great thing.

except for you spent money to get the tax write off, which is less money than you spent, right? So, you know, the idea that you, you know, it’s great to get the tax write off, but still you don’t want to lose the money because whatever you’ve lost is definitely more than what you’ve gained in terms of the tax benefit. So, you know, it’s just something to pay attention to again, you know, it’s another tool in the toolkit. You should work hard to pay.

the tax that you owe and nothing more. If there’s legal ways to reduce your tax bill, it’s always a good idea to do that, keeping in mind that there is sort of this administrative tail. You you’ve got to be willing to do the work to keep receipts, to file for reimbursement, keep track of where your account is and know how things are going to unfold. And also be paying attention to kind of what your career plans are so that you’re not losing money because you have a short.

short year. What else, Mike? What other kind of thoughts do we have for people today on the new military medical FSA? I think we covered most of it. Just be on the lookout for information coming out from BOD and consider it. Make sure you read it carefully and fully understand it.

Mike (21:07)
I think we covered most of it. Just be on the lookout for information coming out from DOD and consider it. Make sure you read it carefully and fully understand it. A

Amy (21:23)
You know, a couple places you can go for information could be the Military OneSource or DOD’s Office of Financial Readiness. That’s where we got a lot of this info for

Mike (21:23)
couple of places you can go for information could be the Military OneSource or DOD’s Office of Financial Readiness. That’s where we got a lot of this info for the

Amy (21:36)
the podcast. So check that out. The DOD office is also called FINRED. If you Google that, it’ll probably come up and you can stay on top of it.

Mike (21:37)
podcast, so check that out. The DOD office is also called FinRed. If you Google that, it’ll probably come up and you can stay on top of it. So

anything else we missed, Danny?

Amy (21:52)
Anything else we missed,

Amy? No, I’ll just point out that the FSA Fed site is a very good resource as well. So if, as you’re trying to estimate what your out-of-pocket costs might be, you can go to that website and you can get a list of the qualified out-of-pocket medical expenses. So the list of things that actually do qualify. So you can go through that list and you say, you know, that.

that’s not eligible, so cross that off my list or I didn’t know that could possibly be eligible and I actually have, you know, a lot of money dedicated to that. So definitely take a look at what the qualified expenses are as you prepare your estimate for your first year. Open season about March when it launches. Hopefully there’ll be more information coming soon.

Mike (22:48)
Great, and I think that about wraps it up. We’ll be back in a couple of weeks, and I hope this was a useful podcast. Thanks, Amy.

Amy (22:48)
Right. And I think that about wraps it up. we’ll, be back in a couple of weeks and, hope this was a useful podcast. Awesome. was always,

always going to chat, Mike. care.

Mike (23:02)
Take care.