Flexible Spending Accounts (FSAs) allow account holders to pay for copayments, deductibles, and other health care costs.
Funds are transferred and spent through the following process:
- The employer "front-loads" the funds for the employee's FSA accounts at the beginning of the year. This means that from day one the amount chosen for contribution is placed in the account.
- The employer deducts the contribution amount each month from the employee's paycheck. That money is held in the company's bank account.
- When the employee uses their debit card for medical expenses, the FSA provider pays the bill.
- Then, on a daily basis, the FSA provider bills the company for any expenses incurred for that day. The employer pays the FSA provider from their account, including the money deducted from the employee's paychecks.