New benefit could help troops save on out-of-pocket health care costs

A new benefit coming to service members in 2025 could help defray their health care expenses, as the military will soon offer troops health care flexible spending accounts, the Defense Department announced Friday.

Service members will have the option to open health care flexible spending accounts for the first time during a special enrollment period in March 2025. They can contribute up to $3,200 a year in pretax earnings toward eligible out-of-pocket health care expenses, with a minimum contribution of $100 annually. The Internal Revenue Service determines eligible expenses and contribution limits, the latter of which may vary by tax year.

The benefit is one of seven initiatives announced Friday by Defense Secretary Lloyd Austin to improve the quality of life for service members and their families.

In essence, it’s a savings account that can be used to pay for items not covered by health or dental insurance. Such accounts have been available for years to employees of many federal agencies and private companies.

More than 300 IRS-approved health care expenses qualify, including copays and deductibles; out-of-pocket costs for braces; glasses and contact lenses; prescription drugs; over-the-counter medicines; and wellness treatments such as acupuncture, massage and chiropractic care.

A wide variety of other items are also eligible, such as hand sanitizer and menstrual care products.

Service members choose their contribution amount, which is automatically withdrawn from their paycheck over the course of the year and deposited into their FSA. Because FSA contributions aren’t subject to payroll taxes, participants can save an average of 30% on eligible health care expenses, according to the Federal Flexible Spending Account Program, or FSAFEDS. FSAFEDS, which will administer the program, offers a calculator to help determine potential annual savings.

FSAFEDS also administers DOD’s dependent care flexible spending account benefit, which became available to service members in 2024.

Service members must submit receipts or other documentation with their claim form.

Once the enrollment period begins, service members can enroll online at fsafeds.gov. Service members must use and claim their FSA funds by the end of the plan year on Dec. 31. Service members can carry over up to $640 of unused funds into the next year if they reenroll.

Otherwise, it’s use or lose: Service members will lose any funds that aren’t used during the plan year.

If both spouses are eligible for a health care FSA, each earner can maintain a separate account, and, combined, can contribute between $200 and $6,400 total per year.

The Defense Department offers free assistance to service members deciding whether to use this benefit, through appointments with a personal finance or tax counselor via DOD’s Office of Financial Readiness and Military OneSource. More information, including financial and tax impacts, will be available on the DOD’s financial readiness site at a later date.

Meanwhile, troops can start gathering receipts and information about their out-of-pocket health expenses now to help decide whether to open a health care FSA in March and how much to contribute.