Flexible spending or health savings accounts give employees a way to save on taxes while setting aside money for health care expenses when your employer offers the plan. You can set aside money before taxing from each paycheck to go into this account. When you need to access the funds, you either submit receipts from approved health care expenses to get reimbursed, or with some plans, you can use a special credit card to pay these expenses directly. Since this is an employee benefit and even though you pay into it, the money in the account goes away in most instances if you lose your job.
Unless you make other provisions, you generally cannot continue participating in a flexible spending account after you leave employment. But use of the account varies by plan and company. In most instances, the plan stops immediately and cannot be used anymore, but with other plans, you may have until the end of the month to spend any money you have set aside.
If you leave employment with a positive balance in your account and there are no provisions to use that amount either through the Consolidated Omnibus Budget Reconciliation Act or your company's policy, you forfeit the amount left in the account. This same thing happens when you leave a balance in your account at the end of the plan year. The provisions listed by the IRS call for the money to be forfeited.
A health savings account allows you to spend more money than the amount you have contributed to it. If you have signed up to allocate $3,000 for the year, that full $3,000 is available to you on the first day of the plan year, even though you haven't contributed it yet. If you leave employment with a negative balance in your account, you are not required to pay the balance back.
When you leave a job, most employers with more than 20 employees must offer COBRA coverage. This allows you to purchase health care coverage at the employer's full cost for up to 18 months. COBRA also applies to FSA benefits. If you leave your job, you can continue your contributions plus a 2 percent administrative charge to keep the plan active. In cases where you still have some time to use your flex spending account after you leave your job, that's the time to take advantage of it -- buy new eyeglasses, fill your prescriptions or make necessary medical appointments. You do not have to purchase your health insurance through COBRA to do this.