During the annual federal benefits open season, federal employees have an opportunity to change or enroll in a Federal Employee Health Benefits (FEHB) program health insurance plan and to change or enroll in a Federal Employees Dental and Vision Insurance Program (FEDVIP) dental/and or vision insurance plan.
The current open season also means that employees have the opportunity to enroll, or to reenroll, in a health care flexible spending account (HCFSA) offered through the Federal Flexible Benefits Plan (FedFlex) program. Information about the FedFlex program and participation in the Federal Flexible Spending Account program FSAFEDS can be obtained at https://www.fsafeds.com.
There is another HCFSA offered through the FedFlex program called a “limited expense” HCFSA or LEXHCFSA. The LEXHCFSA reimburses only qualified out-of-pocket dental and vision expenses. An employee who is ineligible to contribute to the HCFSA (for example, an employee who contributes to a Health Savings Account or HSA could own and contribute to a LEXHCFSA).
Why Federal Employees Should Enroll in an HCFSA
Health care costs are increasing at a rate that exceeds inflation. 2025 FEHB program health plan premiums are increasing 13.5 percent from what they were during 2024. Dental and vision insurance premiums are also increasing during 2025 from what they were during 2024. In addition, out-of-pocket expenses including deductibles, copayments and coinsurance are increasing significantly. Employees have to pay these increasing out-of-pocket expenses for themselves and their families. Employees are aware that there are certain medical, dental and vision expenses that their insurance plans do not cover.
An HCFSA allows employees (federal retirees are not permitted to participate in an HCFSA) to be reimbursed for medical, dental and vision expenses. An HCFSA is funded through a voluntary salary reduction agreement with an employer.
All employee contributions to an HCFSA are deducted from an employee’s gross salary before all taxes are deducted including: (1) Federal and state income taxes; and (2) the Social Security (FICA) tax; (3) the Hospital Insurance Tax (Medicare Part A) payroll taxes. As will be discussed below, another benefit of enrolling in an HCFSA is that the HCFSA owner can use the HCFSA to pay, or be reimbursed, for qualified expenses incurred by the HCFSA owner and dependent family members, even if the HCFSA has not yet been full funded.
Qualifying for the “FedFlex” Program HCFSA
A federal employee can be enrolled in any health, dental or vision insurance plan in order to participate in an HCFSA offered through the “FedFlex” program. The employee can be enrolled in FEHB program, the FEDVIP, in TriCare, or be enrolled in a spouse’s private employer sponsored health insurance plan. In order to enroll in an HCFSA, the employee must be eligible to enroll in the FEHB program, whether or not the employee is enrolled.
Enrolling in the HCFSA and Making Contributions for 2025
Employees who want to participate in the FedFlex program and contribute to an HCFSA must enroll during the current open season. Those employees who are currently enrolled in an HCFSA during 2024 must reenroll for 2025.
HCFSA enrollment for the 2025 plan (calendar) year (January 1,2025 to December 31, 2025) is done by visiting the website https://www.fsafeds.com or calling 877-FSAFEDS (877-372-3337) or the TTY line 866-353-8058). Benefit counselors are available Monday through Friday from 9 am to 9 pm Eastern time.
When enrolling in a HCFSA, an employee must decide how much of their gross salary they want to have deducted and contributed to their HCFSA. The minimum contribution is $100, and the maximum contribution is $3,300, an increase of $100 from the 2024 maximum contribution of $3,200. There are no federal agency contributions to an employee’s HCFSA. The federal government pays all administrative expenses associated with the FedFlex program.
Funding an HCFSA
Once an employee elects how much they want to contribute to their HCFSA during calendar year 2025, the employee’s payroll office will deduct an equal amount from the employee’s gross salary spread evenly over 26 pay dates during 2025. The following example illustrates:
Example 1. Julia is a federal employee. During the current FSAFEDS open season, Julia elects to contribute the maximum $3,300 to her HCFSA during 2025. Starting with Julia’s first pay date in January 2025
$3,300/26 (pay dates), or $126.92
will be deducted from Julia’s gross salary and contributed to her HCFSA.
Note that assuming that Julia is in the 22 percent federal marginal tax bracket and 8 percent state income tax bracket during 2025, her 2025 federal income tax liability will be reduced by $3,300 times 0.22, or $726 and her 2025 state income tax liability will be reduced by $3,300 times .08, or $264.
Until 2015, IRS rules prohibited the carryover of unused HCFSA funds from one plan (calendar) year to the next plan (calendar) year. However, since 2015 the IRS has allowed a carryover of unused HSFSA contributions from one plan (calendar) year to the next plan (calendar) year. The carryover amount from 2015 to 2016 was $500. The $500 limit has been indexed to inflation through the years. The carryover amount from the 2023 plan (calendar) year to the 2024 plan (calendar) year was $610. The carryover amount from the 2024 plan (calendar) year to the 2025 plan (calendar) year is $640.
Distributions from an HCFSA
Distributions from an HCFSA must be made only to pay or (to reimburse the HCFSA owner) for qualified medical expenses incurred by the owner and dependent family members. These expenses must have been incurred during the period in which the HCFSA was in effect. The HCFSA owner is to receive the maximum amount of reimbursement, up to the elected total contribution for the plan (calendar) year. The following example illustrates:
Example 2. Steven is a federal employee. During 2024, Steven elected to contribute $3,200 to his HCFSA. In April 2024, Steven’s daughter started her orthodontic treatment. The total cost for the treatment was $6,000. Steven’s orthodontist agreed to receive the $6,000 on a three-year installment basis with Steven paying $2,000 per yar, starting in 2024. In May 2024, Steven requests a $2,000 withdrawal from his HCFSA, even though year-to-date he had only contributed $1,353 to his HCFSA. Steven intends to reenroll in his HCFSA for 2025 during the current FSAFEDs “open season” and elects to contribute the maximum $3,300 during plan (calendar) year 2025. In early January 2025, Steven intends to request that $2,000 be withdrawn from his HCFSA in order to make the second $2,000 installment payment to the orthodontist. He can do this even though he would not have contributed less than $2,000 in early January 2025. Steven intends to reenroll in the FedFlex program during the 2026 “open season” and contribute the maximum possible to his HCFSA during plan (calendar) year 2026, making the third and final $2,000 installment payment to the orthodontist.
Note that the HCFSA owner must send the FedFlex program “third party administrator” (TPA) a written statement from an independent third party stating that medical, dental, or vision expenses have been incurred by the HCFSA owner or eligible family member and the amount of the expense. The TPA cannot make advance payments from the HCFSA for future or projected expenses.
Expenses Eligible for Reimbursement from an HCFSA
Many of the HHCFSA owner and eligible family member’s out-of-pocket expenses may be reimbursed from the HCFSA if those expenses are not covered by the owner’s health, dental or vision insurance. TO check to see which expenses are potentially reimbursable, employees should go online to: https://www.fsafeds.com/explore/hcfsa/expenses.
Typical expenses include:
• Chiropractic services.
• Deductibles, coinsurance and copayments.
• Dental care including crowns, endodontic services, implants, oral surgery and periodontal services.
• Infertility treatments, and
• Over the counter (OTC) (drugs and medicine) .
Note that any type of insurance premiums – health, dental and vision insurance, or life or long-term care insurance – are not eligible for reimbursement from the HCFSA.
Important HCFSA Dates and Deadlines
The following table summarizes important HCFSA dates for 2025: