Many benefits professionals are already well versed in the importance of pre-tax benefit accounts, including the popular health care and dependent care flexible spending accounts, health savings accounts and commuter benefits accounts, which allow employees to set aside money before taxes to pay for many routine expenses. For employees who have procrastinated and opted not to enroll, rising costs may be the final push they need to sign up.
FSAs offer employees who are frustrated with their out-of-pocket expenses a way to take control and keep costs down. Open enrollment is a key opportunity to explain why employees shouldn’t overlook pre-tax accounts as a great cost-cutting tool.
Rising health care, dependent care and commuting expenses
The evidence of rising health care costs is everywhere. A report from the AARP showed that the prices of brand name prescription drugs have recently grown at nearly four times the rate of inflation. Not only are health care costs rising across the board, they are increasing at accelerated rates, according to the S&P Healthcare Economic Indices. As many benefit professionals know, companies have increased cost-sharing and employee contributions for this upcoming open enrollment.
Health care costs aren’t the only ones on the rise. Dependent care and commuting costs are also trending upward. A 2011 report from Child Care Aware found that the average annual cost of full-time child care for an infant ranged from $4,600 to $15,000. And for commuters paying to fill-up cars at the pump, gas prices are becoming increasingly difficult to manage. A gallon of gas, on average, is up more than 25 cents from this time last year.
Pre-tax accounts: A consistent money saver
One surefire way to keep expenses down is paying with pre-tax dollars, which can lead to savings of up to 40 percent. In fact, taking full advantage of pre-tax health care, dependent care and commuter accounts can save participants a lot of cash—in many cases, more than $4,500 next year.
Unfortunately, many employees are not using these accounts to their full potential. According to a recent survey from Aflac, only 16 percent of employees contribute the correct amount to their FSAs. And rather than carefully examining their options from one year to the next, almost 9 in 10 Americans simply select the same benefits every year and continue to miss out on critical tax savings.
Since costs will likely continue to rise, it’s important for benefits managers to use this open enrollment to help employees take advantage of great savings opportunities.
Open enrollment resource
For lists of eligible expenses, frequently asked questions, and a tool to calculate potential savings, visit SaveSmartSpendHealthy.com.