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Health Insurance Glossary

Definitions for common health insurance terms

medical flexible spending account

DEFINITION: A medical flexible spending account (FSA) is a tax-advantaged account maintained by employers where employees can set aside a portion of each paycheck to pay for out-of-pocket medical expenses. No payroll taxes are due on funds allocated to an FSA, and the employee can use the money to pay for qualified medical expenses throughout the year.

There is a “use-it-or-lose-it” requirement with FSAs: Any money left in the account at the end of the plan year (or by March 15th of the following year if the employer offers a grace period) is lost to the employee, so it’s important to only allocate for expenses that you know you’ll incur. FSAs can be used in conjunction with high deductible or more traditional health plans.