According to this requirement, the employer is liable for the elected amount of the Medical Care Spending Account at the beginning of the plan year. In other words, if an employee incurs an eligible out-of-pocket expense which exceeds his contributions to date, the employer is required to reimburse the amount of the eligible expense in full up to the amount the employee elected for the entire year.

At first this rule sounds risky for the employer. However, in reality employer at risk rarely becomes a significant liability. Bear in mind that several improbable events must occur in close succession to result in a risk to the employer: 1) the employee must incur a large out-of-pocket expense early in the year; 2) the expense must not be eligible for reimbursement under the health insurance plan; and, 3) the employee must then terminate employment. One final consideration is, if the employer has an employee who terminates owing money, the employer may realize gains from forfeitures to offset liability due to employer at risk.

If an employee does not use all the money in their Medical Care and/or Dependent Care Spending Account(s) by obtaining reimbursement for eligible expenses, they will forfeit any amount remaining. Funds remaining in the account cannot be returned to the employee nor be credited to his account for use in a future year. Amounts left unreimbursed shall go to the employer and may be used to offset plan losses and administrative expenses.

Once employees authorize payroll redirection’s to Flexible Spending Account(s), they may not cancel or change those elections or add coverage until the next enrollment period. The only exception is if an employee has a change in family status. One restriction placed on the employee’s ability to make a change due to a change in family status is the intended change must be "on account of" and "consistent with" the applicable event.

As stated above, IRS regulations require employees to forfeit any money not used for expenses incurred by the end of the plan year. To avoid forfeiting money, employees should try to estimate what their expenses will be before they decide what to contribute – and then commit to a little less

The IRS allows an employee to submit claims for out-of-pocket medical expenses for all members of the employee’s immediate family. Medical expenses for family members are eligible for reimbursement from the Medical Care Spending Account even if the family member is covered under an insurance program other than the one under which the employee is covered.

Before making their selection, employees should consider each of the following:

• Their eligible and PREDICTABLE medical care expenses.

• Their eligible child care expenses.

• The timing of their expenses.

• Their ability to afford a reduction in their paycheck because part of their salary is being set aside for future expenses.

• Their Federal income tax situation.