The FSA Death Spiral: Complexities Erode Account Usage

Apr 15, 2024 | Posted by Elevate

Modern Technology, AI, and Automation Ease Pain Points

For millions of Americans, flexible spending accounts (FSAs) are a lifeline to accessing affordable healthcare. Access to these accounts is fairly widespread, with 62% of employers offering a medical FSA option in 2023, according to SHRM’s 2023 Employee Benefits Survey. However, FSAs have been plagued by complexities and administrative burdens, which can cause eligible employees to decline the benefit.

A recent Visa study* highlights the negative opinions that disengaged employees—those not enrolled—have about the account’s value and ease. As unenrolled employees decline to enroll in future years, they continue a path of negative opinions and disengagement—ultimately going down an “FSA Death Spiral” and missing out on the financial advantages.

Key points from the study:

  • FSA users remain more proactive about their health compared to non-users.
  • Roughly half of FSA users would cut back on care without their accounts.
  • The fear of losing unused funds continues to be the biggest barrier to enrollment in FSAs.
  • Those who don’t enroll see FSAs as too complicated.
47% of FSA enrollees say they would cut back on medications and treatments if they didn’t have an FSA. 52% of the disengaged are people with recurring health problems.

Why do traditional FSAs present a problem?

There are several reasons workers are dissatisfied with their FSAs.

  • Complexity: Visa’s study shows 38% of unenrolled find FSAs complicated. What’s even more surprising, 29% of enrolled FSA users agree. Enrollment requirements, contribution limits, and account deadlines can all seem difficult. For those enrolled, clunky user interfaces, mailed notices, and slow payments cause additional confusion.

  • Use it or lose it: The fear of losing unused funds at year-end, cited by 44% of individuals who didn’t enroll, creates pressure and discourages enrollment. This fear is real; according to the Employee Benefit Research Institute (EBRI), around 50% of workers in recent years forfeited some money from their FSA. This apprehension further drives disengagement, even though many plans build in grace periods and rollover to allow additional time for funds usage.

  • Convenience woes: Despite their intended purpose to aid the American worker, FSAs haven’t always been known for convenience. In fact, Visa’s data shows a decline in perceived convenience among non-users, dropping to 65% in 2023 from 73% in 2022. This perceived lack of convenience is due to gaps in existing technology solutions. For example, many legacy solutions use human review for claims documentation, which adds days to the process and can often provide inconsistent results.
“FSA technology has not kept pace with the modern consumer experience. Everywhere we go, it’s easier to pay for the consumer goods we need and want, but FSAs remained clunky and slow. We knew we had to build something better,” said Brian Cosgray, co-founder and CEO of Elevate.

Elevate makes FSAs work

With Elevate, these pain points are eliminated. Elevate offers:

  • Instant claims approval: Our OCR claims entry paired with AI-enabled processing means no more lengthy claim forms and waiting periods. Our AI is consistent, never offering a conflicting response on a receipt review, avoiding the FSA pain point of inconsistent claim determinations. There are no queues or sick days for AI! It is all processed instantly, unlike traditional processes that use humans. See this technology in action.
  • Instant payments: Elevate's technology issues reimbursements right away in all the most popular formats—Paypal, Venmo, and debit card pushes. Mailed checks and multi-day transfers are no longer the status quo.
  • Real-time coaching: For users who are unsure about what's eligible or if documentation will be approved, Elevate's technology provides immediate feedback so each user receives personalized guidance during claims submission. No more waiting weeks to receive a claims response in the mail—now it all happens in real-time.
  • Real-time diagnostics and actionable solutions: Elevate’s system helps FSA users immediately understand and resolve account issues. For example, in the case of a card being declined at the point of sale—whether it's due to insufficient funds, the end of your plan year, or using an unactivated card, or otherwise—Elevate provides clear explanations and guides the user through the next steps to resolve the issue on the spot. In the case of an unactivated card, users can simply text Elevate the last four digits of the card to activate it.

“FSAs have incredible value, but they just weren’t being managed correctly in the past. Accessing your benefits should not be a complicated chore. We’ve built the most modern user experience and consumer conveniences our offerings—so that using these accounts is simple, intuitive, and your FSA becomes a benefit once again,” said Cosgray.

Impact on health and well-being

Eliminating the complexities and frustrations associated with traditional FSAs has much larger implications beyond just expanding engagement in employer-provided benefits. As FSA usage expands, it has the potential to have a greater impact on employees’ health and well-being.

Greater FSA enrollment can have a positive impact on healthcare utilization, as FSA users are more likely to seek preventive care and save for future care. In fact, Visa reported that 67% of FSA enrollees feel they are now taking better care of their health and 57% are saving more money for future healthcare needs since COVID. This is significantly more than their unenrolled counterparts, at 50% and 32%, respectively.

67% of FSA enrollees say they are taking better care of their health since COVID, as compared to non-enrollees at 50%.

FSAs can also help reduce financial stress and let account holders make informed healthcare decisions. For example, over half of FSA users say that having an FSA makes them feel ‘prepared’ and ‘responsible.’

The administrator’s FSA fix

The FSA Death Spiral is no longer inevitable. With Elevate’s innovative technology solutions, FSAs become more accessible, and account administrators can finally reach the full growth potential of their FSA programs.

“Our clients are able to better lead their markets by offering a solution that eliminates common pain points. Over time, with our advanced technology, we will see FSA satisfaction and usage increase. We’re excited to ultimately have a positive impact on health outcomes in the future,” said Cosgray.

Ready to learn more? Schedule a personalized demo.


*The 2023 Flexible Spending Account and Health Savings Account Consumer Research study was commissioned by Visa and conducted by Material in April 2023; FSA data was compiled from a nationwide online survey of 1,250 consumers.

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