FSAs: The Fun Coupons of Wellness

Why consumers forfeit $3 billion of FSA money each year, and what Sephora and Amazon are doing to capture it.

Author

Clara de Lima
December 17, 2024

Every year, U.S. consumers leave behind $3 billion in FSA funds—money that could cover a range of health expenses from hypnotherapy to premium skincare to advanced microbiome tests.

So, what’s behind this forfeiture frenzy? And how can companies and consumers turn it into a win-win? Let’s dive in.

[3-minute read]

Quick context 👇️ 

FSAs 101 🧑‍🏫 Flexible Spending Accounts (FSAs) allow U.S. employees to set aside pretax dollars for healthcare expenses. Introduced in 1978, FSAs are now offered by 86% of employers.

The Problem 👉 Half of FSA users leave an average of $441 unspent annually—totaling a staggering $3 billion in forfeited funds.

Younger employees are particularly prone to forfeiture, often due to lack of education and awareness.

End-of-year spending paradox 🗓️

Ironically, while consumers splurge on holiday shopping, they often forget about their own pretax FSA money that’s nearing its deadline:

  • Holiday spending increases 💹 Retail companies typically see their highest sales during the holiday season, particularly in November and December.

  • Consumers become curious about FSAs 🔎 'FSA' search volume spikes as people scramble to use up funds before the typical December 31st deadline.

But 48% of FSA users still miss the opportunity to spend all of their FSA funds.

Where does the FSA money go? 👀 

Use it or lose it 👉️ Unused FSA funds typically revert to employers, who may use them to offset admin costs or redistribute them back to employees.

How to spend it 👉 FSA money can be used on “qualified medical expenses” which includes a surprisingly wide range of items like:

Incentives matter 💡 Many FSA-eligible items carry high price tags, so retailers are highly motivated to help consumers spend their funds before the deadline.

To make the process easier, many businesses go the extra mile by offering special FSA payment processing or facilitating a ‘Letter of Medical Necessity.’

Who’s Winning the FSA Big Bucks 💸 

Amazon

Amazon’s FSA storefront strategically highlights items over $250, appealing to consumers looking to spend larger amounts to avoid forfeiture.

Sephora

Sephora’s FSA-eligible buying guide includes high-end items ranging from Goop sunscreen to $450 Dr. Dennis Gross LED light mask.

The beauty retailer benefits from the added tailwind of personal finance influencers who spread the word of FSA-eligible items at Sephora.

Shopify + Sika

Shopify’s app store includes integrations like Sika which enables small businesses process FSA payments and even provide a letter of medical necessity.

Sika’s integration reportedly helps businesses increase average order value by 86%.

What the Experts Say 💡

"For employers, FSA’s are meant to be a helpful way of enabling employee wellness. However, employees either forget about their contributions by the end of the year or don’t understand how to leverage them.

Utilization should be a no-brainer, but there are currently huge gaps in employee education and consumer awareness.”

-Luke Aslesen, Founder of INFMRD, a benefits education platform

Hypothesis on how FSA spending evolves 🔮

The FSA contribution limit typically increases each year. In 2025, FSA limits will go up to $3,300 per person—meaning there’s a growing untapped market for capturing FSA dollars. Look out for more:

  1. Seamless shopping experiences 🛍️ Expect more businesses to develop integrations and guides for consumers to find and pay for FSA-eligible products.

  2. FSA education campaigns 🔖 Health and wellness retailers will invest more marketing budget into educating consumers about FSAs in an effort to capture those unspent dollars.

If you were forwarded this breakdown, subscribe here to stay up to date 📤️ 

Heads up 👉️ I’m taking a break from the newsletter over the holidays, but I’ll be back in January with amazing health and wellness industry deep dives!

Don’t forget to spend your FSA money in the meantime 🫶 

-Clara

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