Those not-so-flexible spending accounts

You could says it's one of Mike Sheldon's holiday traditions. This is the time of year when the Bloomington resident bulks up on contact lenses.

He's come to the Lenscrafters store at the Mall of America to spend money remaining in his health care flexible spending account. "Use it or lose it," Sheldon says. "Usually I'm able to use probably 90 [to] 95 percent, if not all of it."

Money put in flex spending accounts can be used to pay for medical expenses not covered by health insurance. For most people, the accounts effectively save them 20 to 30 percent on out-of-pocket medical expenses. That's because money put in the accounts isn't subject to payroll taxes.

The government doesn't limit how much money a worker can set aside. But many companies set a cap of $5,000 a year. The catch is, employees forfeit any money they don't spend.

"The concern about the forfeiture is pretty much unfounded."

Mike Sheldon laments it's hard to forecast how much money he should put in his account. Too much is a problem. Not enough means he's spending more than he has to on health care.

But he puts some money aside anyway because he wants the tax savings.

"I do struggle a bit with all the different things I can spend that on and get reimbursed for, tax-free, really everything from cough syrup to eye contact solution," Sheldon says. "I probably don't take advantage of it as much as I could. But I certainly do think for the bigger purchases, like contacts, it's a nice program."

But most workers eligible for health care flexible spending accounts don't have to worry about guessing wrong. Even at big companies, few employees take advantage of the accounts.

"Twenty-one percent take up the health care spending account," says Blaine Bos, a partner with the Mercer consulting firm.

Bos says most workers are unduly worried about forfeiting money left in the accounts. But even people who forfeit some money are likely to come out ahead with the accounts.

Bos says the average contribution to an account is about $1,500. Forfeitures average less than $60. But tax benefits leave most people with hundreds of dollars in savings anyway, even if they forfeit some money.

But Bos says most people don't get the math.

"The concern about the forfeiture is pretty much unfounded," says Bos. "And the lack of tax savviness is the other reason that employees would not take advantage of this very real tax benefit."

Most large employers offer health care flex spending accounts. And more and more companies are giving workers until mid-March to spend contributions made in the previous year.

But extended grace periods don't seem to help people spend all the money they set aside. That's been the experience of Mary Jo Davis, senior manager for Ceridian Benefits Services. The company administers flexible health spending plans for some 3,500 employers.

"[For] people who tend to be procrastinators, the grace period services only have helped about 9 percent of those people," says Davis. "The rest of the people still are procrastinators and end up forfeiting dollars."

LensCrafters counts on people who wait until the last minute to give the company a sales kick on the last day of the year.

"Four o'clock in the afternoon, the mall closes in two hours, and they'll come running in," says Mary Jo Tierney, general manager of the LensCrafters store at the Mall of America.

"They want a receipt that says 2007, whether it's an eye exam, prescription glasses, prescription sunglasses, contact lenses," Tierney says. "They might come in with the whole family. Buy multiple pairs. They need to use up that money, because they know they'll lose it if they don't use it."

Tierney sees many of the same customers, even families, year after year on New Year's Eve. Most will save money with the flex spending accounts, even if they forfeit some money.

As health care costs continue to soar, the people who really lose out are those who don't even use the accounts.

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