I’m currently going through the open enrollment process at work and wanted to shed some light on a topic that may be confusing to some…
As you may or may not be aware, HSAs (i.e., health savings accounts) and FSAs (i.e., flexible spending accounts) are incompatible.
More specifically, if you’re contributing to a general purpose healthcare FSA, then you’re not eligible to contribute to an HSA, even if you would otherwise be eligible thanks to your HDHP.
There is, however, an exception if you have access to a so-called “Limited-Purpose FSA” (LPFSA). In that case, you can contribute up to $2,500 to the LPFSA while still being allowed to fund your HSA.
What’s an LPFSA, you ask? Well…
As the name suggests, it’s an FSA, but with limits on how you can use the funds. Unlike a general purpose healthcare FSA, you can only use LPFSA funds to cover unreimbursed expenses related to dental care, vision care, or preventive care.
Dental expenses that typically qualify include things like:
- Dental exams
- Fillings and crowns
Vision expenses that typically qualify include things like:
- Eye exams
- Contacts and glasses
- Vision correction procedures
And preventive care expenses that typically qualify include things like:
- Routine exams and diagnostic screenings
- Routine prenatal and well-child exams
- Immunizations, including flu shots
- Medical monitoring and testing devices
- Tobacco cessation programs
Importantly, LPFSAs increase your (potential) tax breaks associated with healthcare, and might help you to keep your HSA balance intact for investing purposes.
According to our benefits office, LPFSAs operate under the use-it-or-lose-it rule. It’s not clear if the Treasury’s recent modification of that rule for FSAs also applies to LPFSAs. Time will tell, I guess, though it would be nice to know right now.