Q:

How is an FSA's total annual amount of contribution available on the first day of coverage?

I'm walking through my open enrollment documents and there's this part that surprises me...

Is the annual amount of the contribution available on the first day of
  coverage?
HSA: No. Only the amount currently available in the HSA may be used to pay or reimburse qualified expenses.
FSA: Yes.

I had phoned my dentist this morning to get an estimate for some treatment I wanted to begin to sock away money for so I could make the payment at the end of the year and get my FSA contributions lined up today. I was under the impression that I had to wait for the payroll contributions to accrue to get to the balance needed to cover the treatment expense. This would match my experience with HSA's where it's my own private account and I can only debit from it what the current balance is much like a regular checking account.
However, this FSA account seems like an entirely different animal. It seems to me like an FSA is an account that can hold a negative balance in the account that I'm expecting cannot exceed my yearly contributions. How is all this managed and regulated exactly? I see biweekly withdrawals out of payroll, where does the money come from if I spend the total yearly amount in the first month of coverage using the assigned Health Care Spending Card.

A:

FSA IS an entirely different animal from HSA.  FSA is a "spending arrangement" not a "savings account."
With FSA, you elect to forego some amount of income for the year.  As of January 1 you have access to spend up to that amount of your employer's money for qualified expenses.  If you leave the company having spent all of your allotted funds without contributing an equal amount, there is no repercussions to you, no collection efforts, etc.  If, however, you don't spend your allotted amount by the end of the plan year it's forfeited but many plans take advantage of either extending the claim submission deadline or a rollover of a portion of your unspent funds.
An HSA is a savings account with specific criteria that must be met in order exempt those funds from income taxation.  Just like your other savings accounts you can only spend money contained in the account.  Your employer can contribute in to your account, but also just like your other savings accounts your employer can't see your balance etc; because it's a savings account that's in your name.

