What is a Limited Purpose FSA?
What is a Limited Purpose FSA (LPFSA) and why would an employer adopt one over a traditional FSA? BASIC can help answer that question! 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. That’s where Limited Purpose FSAs can help.
Companies who want to help their employees maximize their HSA benefits often choose to offer a Limited Purpose FSA (LPFSA) that pays only dental & vision expenses for individuals who are enrolled in an HSA. This Limited Purpose 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 is a Limited Purpose FSA?
Eligible Expenses
- Eligible?
- Expense Type
- Yes
- – Dental, Vision, or Preventive Care
– Medical expenses incurred after the minimum annual HDHP deductible under Code §223 has been satisfied (a.k.a. post-deductible expenses).
- No
- Premiums for insurance coverage (even if the coverage is for dental or vision care)
- Maybe
- OTC drugs typically cannot be reimbursed, except in cases where it qualifies for permitted coverage (e.g., visoin or dental care) or preventive
Why not just pay these expenses with an HSA?
All these expenses can be paid from an HSA, but some employees value the ability to pay for dental or vision expenses through the LPHSA so they can preserve their HSA funds for other uses.
- Large expenses like orthodontia and LASIK surgery can deplete HSA funds fast!
- 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.
BASIC Can Give Your Benefits Package an Advantage!
We know complex regulations can make benefits administration and compliance difficult for employers. Fortunately, the BASIC Consumer Driven Accounts benefit system lets employers add a number of benefit plans that can all be accessed via one website, one benefits card, and one mobile app, all with BASIC’s proven administration and compliance expertise.
BASIC is always there to answer questions like “Are face masks FSA eligible?” for our clients and broker partners. Request a no-cost proposal today to see how your organization can take its benefits package to the next level!
