Limited Health FSAs – What’s the point?

If an individual uses a Health Savings Account, what is the point of enrolling in a Limited Health FSA?

 

 With the increase of employer-sponsored Health Savings Accounts, “Limited” Health FSAs are experiencing similar growth.  But some wonder; “Why bother using the Limited Health FSA if the same expense can be paid from the HSA?”

 

 Background

 

In order to be eligible to make contributions to a Health Savings Account (HSA) , an individual must be covered under a qualified high-deductible health plan, and have no other health coverage except for certain “permitted coverages” (e.g.  preventive care, dental, and vision care).  Thus, an individual cannot enroll in a  general-purpose health FSA because that benefit covers all medical expenses.

 

 The Limited Health FSA Is Born

 

Companies who want to help their employees maximize their HSA benefits often choose to offer a Limited Health FSA (LHFSA) that pays only dental & vision expenses for individuals who are enrolled in a HSA.  This Limited  Health FSA must be a separate plan – an individual cannot use a general-purpose FSA and self-restrict their claims to dental or vision expenses.

 

What Expenses Can Be Paid From A   Limited Health FSA?

Yes

No

Maybe

  • Dental,   vision, or preventative care
  • Medical expenses that are incurred after   the minimum annual HDHP deductible under Code §223has been satisfied (aka   “post-deductible” expenses).
 Premiums for   insurance coverage (even if the coverage is for dental or vision care)  OTC drugs typically cannot be reimbursed, except in cases where it qualifies for permitted coverage (e.g., vision or dental care) or preventive care.

 

Why Not Just Pay These Expenses Through The HSA?

 

Sure, all these expenses can be paid from a HSA. But some employees value the ability to pay for dental or vision expenses though the LHFSA because they want to preserve their HSA funds for other uses.

  • Large expenses like orthodontia and Lasik surgery can deplete the HSA in a hurry!
  • Some participants need all of their HSA contributions to pay for deductibles and prescriptions.
  • A growing number of individuals choose to save their HSA funds to use for health expenses after retirement.

 

If an employer is already maintaining a FSA plan for the employees who are not in the HDHP/HSA program, then the LHFSA is an easy addition.  If you have any questions about coordinating HSAs with other benefit plans, or how you can maximize pretax reimbursement accounts, call NEO – we would be happy to discuss your options!

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