In which of the following does a covered employee agree to a reduction in compensation to cover medical expenses?

A Flexible Spending Account (FSA) allows employees to allocate a portion of their earnings on a pre-tax basis to pay for eligible out-of-pocket medical expenses. By contributing to an FSA, employees effectively agree to a reduction in their take-home pay, which helps cover medical costs not fully paid by insurance. This pre-tax contribution lowers taxable income, so while the employee experiences a decrease in compensation, they benefit from tax savings and increased cash flow for medical expenses.

This structure is particularly beneficial for individuals with predictable healthcare costs, as it allows them to budget effectively for medical expenses throughout the year. The funds in an FSA can be used for a wide range of qualifying medical expenses, making it a practical financial tool for managing healthcare costs.