03/12/2012 03:28 pm ET

Flexible Spending Accounts: Use It Or Lose It By March 15

If you've got money left over in your health care flexible spending account from last year, hurry up and spend it. This tax-free employee benefit program has a "use-it-or-lose-it" clause that kicks in on March 15, which means now might be a good time to hit the pharmacy for some disposable heating pads or to pick up a fresh pair of contact lenses.

Stocking up on headache remedies, cold medicine and other over-the-counter drugs may not be the easiest way to spend down your account anymore. The health reform law enacted in 2010 only permits people to use tax-free health care accounts for over-the-counter drugs if they get a prescription first, though that rule excludes insulin for diabetes patients. If you hurry, you may be able to get your doctor to call in a prescription in time. Think ahead: Allergy season is right around the corner.

There are alternatives on the pharmacy shelves, however, said Jody Dietel, the chief compliance officer at WageWorks, a firm that administers employee benefits for companies and handles 1.8 million flexible spending accounts. First-aid kits, bandages and other medical supplies all meet Internal Revenue Service rules for flexible spending accounts, she said. Consumers should check their medicine cabinets to see what's running low, she said.

Flexible spending accounts allow workers who get health benefits at their jobs to set aside wages for health care expenses during the year. The money isn't taxed when it goes into the accounts or when it's spent on qualified medical expenses like co-payments for physician visits and prescription drugs, dental care, and eyeglasses or contacts. FSAs can also be used to pay for services often not covered by health insurance, including acupuncture and chiropractic care. Account holders may use a special debit card for these expenses or may get reimbursed later by their employers.

The rub is that any money still in the account by the deadline is lost forever. Unlike other types of tax-free benefits, such as health savings accounts, FSAs are intended to defray predictable medical expenses in a year, not to accrue money over time. That's why it's possible to lose money in flexible spending accounts at the end of the year, or for up to two-and-a-half months into the following year, depending on your employer's rules.

Employers get to keep the leftover money but can only use it for expenses related to providing FSAs to workers, Dietel said. About 4 percent of the money in FSAs winds up unspent each year.

People are actually more likely to run out of money in their FSAs early than they are to lose funds, said Dietel. "Our data show that people don't rush to spend at the end of year," she said.

The real answer to the "use-it-or-lose-it" conundrum is to plan better, Dietel said. "People generally don't take the time to estimate their expenses. Health care is getting to be a little bit more complex so we do need to be in the driver's seat a little bit more."

When deciding whether to open a flexible spending account and how much money to set aside, it's important to review out-of-pocket medical costs from the previous year to get an idea of how much you'll spend in the coming year. Remember to discount any big one-time costs, like a broken bone, and to factor in any new health problems you developed that will require regular use of prescription drugs, like high cholesterol. Companies like WageWorks and employers offer online calculators that can help, Dietel said.

Employees typically select their health benefits and make choices about flexible spending accounts in the fourth quarter of each year. Starting in 2013, the health reform law establishes a $2,500 annual cap on how much you can put into a flexible spending account and employers are permitted to set a lower limit

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