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A "Flexible Spending Account (FSA)" is a federally-qualified, tax-exempt individual health account that an individual employee uses to pay a portion of their health care bills. There are two main tax code restrictions on FSAs: (1) the employee loses whatever funds are left in the account at the end of the year; and (2) the employee cannot withdraw cash from the account. FSAs have been used for years to accompany complete group health insurance. FSAs can encourage wasteful spending at the end of the year and dilute the cost-containment incentives of copays on complete health insurance.
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