Suppose Pearce has a pre-existing condition that requires regular trea

QUESTION

Suppose Pearce has a pre-existing condition that requires regular treatment. Which factor makes creating a flexible savings account (FSA) a less attractive option for this employee?

A) Not all the providers Pearce uses are comfortable with taking a spending account card in payment.
B) Pearce now cannot use FSA funds for over-the-counter medications such as painkillers.
C) The FSA no longer requires original receipts to reimburse flexible spending funds.
D) FSA programs have a limit of $2,500 per year and cannot be rolled over.
E) Committing to an FSA reduces Pearce’s tax indebtedness.

ANSWER

Answer: D
Explanation: D) If Pearce has out-of-pocket expenses in excess of $2,500, as would be likely with a pre-existing condition, then the FSA might not be beneficial. So Choice D is correct: Pearce’s salary would be reduced by this amount, and then he would have to pay additional medical expenses as well. He would see a modest tax savings, as Choice E notes, but this would not be enough to offset the salary reduction. None of the other options are as weighty. It is true that the use of a debit card may be new to some providers (Choice A), and that it can be used only for copays and deductibles, not OTC products (Choice B), but if Pearce’s salary is already marginal, the cost of an FSA is a step back, not ahead. Choice C is not relevant to this issue.