For families considering orthodontic treatment, using a flexible spending account (FSA) has traditionally been a great way to help pay for treatment with tax-free dollars. According to the American Association of Orthodontists (AAO), these accounts, which are offered to approximately 14 million Americans through their employers, allow workers to set aside funds in a tax-free account and use them for non-covered medical expenses, such as deductibles, co-pays, and medical services like orthodontic, dental, and eye care. However, significant cuts to the program are hurting families’ ability to pay for out-of-pocket expenses, according to the AAO.
“More than 60% of orthodontic patients use FSAs to pay for treatment,” says Gayle Glenn, DDS, MSD, president of the AAO.
Prior to the enactment of the Patient Protection and Affordable Care Act, the Internal Revenue Service permitted employers to enact any maximum annual election for their employees. Most companies allowed employees to set aside up to $5,000. But beginning in 2013, the Patient Protection and Affordable Care Act amended Section 125, which pertains to the use of FSAs, to lower the annual limit to $2,500 for the first plan year beginning after December 31, 2012.
“Families with children and adults considering orthodontic treatment need to be aware of this change and adjust their financial plans accordingly. For many people, this represents a 50% reduction in benefits,” Glenn says. However, there is a small silver lining, she says. “The IRS recently issued a new ruling which allows account holders to roll over up $500 into the following year. This helps ease the restrictive ‘use-it-or-lose-it’ requirements.”
As many employers are currently engaged in open enrollment for FSAs, the AAO recommends that orthodontists remind families and individuals who are considering orthodontic treatment to review the new rules carefully before making their choices.