Spending accounts can be a great way to keep employee benefits within budget while providing flexibility to employees. The simplicity of them is also quite attractive. However, it is important to ensure that the details surrounding spending account claims submissions and carry-over rules are well known so employees can get their claims in on time.

Allocation Options

There are different options for how spending account allotments can be delivered to employees. An allotment is the amount of money that is provided via the spending account to each employee. The amount depends on the plan design, as well as specifics such as employee class and hire date. 

Annual – This means the full amount is put into the employee’s spending account at the beginning of each benefit year. For spending accounts, this is usually January 1st.

Monthly – the total allotment amount is divided by 12, and that amount is provided each month. While allotment amounts may be split up, employees do not have to “use” all of that amount during that month. More on that below.

Pro-rating – this is used for new employees who start part-way through the benefits year. The allotment is calculated based on how much of the benefit year is left and then that amount is provided. For example, if an employee became eligible on March 1st, and the full allotment amount was $800, the employee would receive 3 months less, or ¼ less of their allotment.

Therefore, they would receive $600 for the first year.

Claims Submissions Deadlines

Spending accounts also have deadlines by which all claims need to be submitted. Depending on the situation or the plan design, these can vary.

At the End of the Year

Spending account claims must be entered within a specified time at the end of each benefit year (usually on December 31st) in order to be reimbursed. For most plans, there is a three (3) month window during which all claims from the previous year must be submitted. If this is the case, then by the end of March, all claims should be entered in order to be considered for reimbursement.

At Termination of Employment

When an employee is terminated, they have a grace period during which they can submit any spending account claims that were incurred during their employment. A common grace period is 30 days. But employees should always confirm with their employer or plan administrator regarding the amount of time they have to submit their claims.

Carry-Forward Options and Rules

Spending accounts have a nifty option called carry-over or carry-forward. It is also sometimes referred to as rolling type. Essentially, it means that unused amounts or unsubmitted claims can be carried forward (or rolled over) into the next benefit year.

Balance Carry-Forward

With this method, any unused allocation amounts from the previous year are “kept” in the account, and can be used towards claims in the next year. For example, if an employee has $300 leftover from 2022, they can use that, plus their new allocation from 2023, towards claims in 2023. 

Most plans have a carry-forward time limit, with 12 months being the most common. This means that if unused amounts from 2022 are not used within 12 months (or by the end of 2023), any leftover amount is forfeited.

Claims Carry-Forward

Just as the balance can be carried forward, so can claims. With claims carry-forward, unpaid amounts for a claim from one year can be submitted to the next year for reimbursement. Employers cannot choose both balance and claims carry-forward, they can only select one or the other.

For example, say an employer provided a $500 HSA. An employee has a large claim for hearing aids that cost $100. They submit the claim to their 2022 HCSA and are reimbursed $100. With claims carry-forward, they can submit the claim again in 2023 and be reimbursed for the remaining $400. 

This option is only available with claims carry-over. If this is not part of the plan design, there is no way to be reimbursed for claims incurred in the current year (2022) with funds from the next year’s allotment (2023). 

*Claims carry-forward is not available with the Wellbyte’s product

Spending accounts are a great way to provide employees with flexibility in their health employee benefits. Just make sure to communicate all the details with employees. You want to make sure they are aware of all claims submissions deadlines, as well as any carry-over options and how they work.