FSA: How much should you contribute during open enrollment?

Nov 29, 2023

Learn how to include historical values for copays, deductibles, eligible products, and over the counter purchases

Contents

The most common question we have heard on Flexible Spending Accounts (FSA) is “How should I decide my contribution amount?” The reason that this question is so crucial is due to the basic constraint on FSA: “Use It or Lose It” and the known yet surprising fact of Loss Aversion, in short, the pain in losing is significantly stronger than the joy in winning. So no one likes losing their FSA funds.

How should I decide my contribution amount?

There are hundreds of tools that can help you predict your expenses. These are obviously better than a wild guess, but these tools are based on statistical modeling. Or, saying it differently, you can still lose money, but it’s less likely than picking up a random amount.

We strongly recommend spending 10 min on your actual usage so you can drive actual insights on your spending and have higher confidence in the number.

So, how to look at your actual usage?

Historical eligible expenses are divided into three buckets:

  1. Copay and deductible: If you saw a physician or any health practitioner, it’s likely that you paid some of the cost. This is usually referred to as Copay, Coinsurance, deductible, etc. The good news is that most insurance companies can show you a summary of your out-of-pocket expenses. Just log in to your insurance company’s portal and see how much out of pocket you spent last year. This is the first bucket of eligible expenses.
  2. Eligible product: there are thousands of products like sunscreen, tampons, pain relief, and more that are eligible. It can easily sum up to a few hundred or more a year. The easiest way to estimate this for your own case is to go to an app like Silver and let it scan your historical purchases. This is the second bucket of eligible expenses.
  3. Out of network services: services like Therapy, Chiropractic, Psychiatric, Acupuncture, and more are eligible expenses. These will usually show up on your credit card statement. So use your last year’s CC expenses and try to sum up all eligible services. This is the third bucket of eligible expenses.

Once you sum up these three buckets, it can provide a very strong estimation on your personal expenses. Please note that most FSA programs allow you to roll over up to 20% of the max contribution, which is $640 for 2024. So even if you added a bit too much, you will not loose if you are off by less than $640.

Pro tip: most people underestimate their eligible expenses due to the loss aversion 🙂

Oded Shekel
Co-Founder and CEO of Silver