Have you considered adding a limited-purpose flexible spending account (FSA) option to your company's health care coverage options? Before your employees start contributing to a limited-purpose FSA, they need to know this type of health plan works and how it can be advantageous for them.
A limited-purpose FSA is similar to a general-purpose health FSA - the difference being that there are fewer eligible expenses.
Employees are not allowed to contribute to both a health savings account (HSA) as well as a standard (non-limited) health flexible spending account (FSA). They are, however, eligible for an HSA if they use a limited-purpose FSA for their dental and vision care needs. This will allow for your employees to maximize their savings and tax benefits.
As an employer, you have the option of incentivizing a limited-purpose FSA by reimbursing standard FSA-qualified health care expenses as your employees meet their deductible. This would cause your employees' limited health care FSA to work like a standard health care FSA and will not limit it to dental, vision, or preventative care. Employees would remain eligible for an HSA once meeting their limited-purpose FSA deductible.
FSAs employ a "use-it-or-lose-it" model. If you do not use the funds you contribute in your limited-purpose FSA within the year, you will have to forfeit those funds. However, employers also have the option of allowing employees to carry over up to $500 of unused funds from one year to the next. In addition, any amount that is carried over does not count toward the maximum contribution limit.
In a limited-purpose FSA, covered health care procedures are limited to dental, vision, and preventative care.
Over-the-counter medicines are not covered under an FSA without a doctor's prescription (except for insulin).
There are contribution limits to FSAs. The contribution limit for 2017 is $2,600. There is also no "double-dipping," meaning the employees are unable to pay for a medical procedure using their FSA as well as an additional plan or program, such as an HSA.
If your employees have planned future dental or vision expenses, limited-purpose FSAs make a lot of sense, especially when used in conjunction with an HSA.
Typical Eligible Limited FSA Expenses:
- Contact Lenses
- Vision Correction Procedures
Typical Ineligible Limited FSA Expenses
- Insurance Premiums
- Medical Expenses (Deductibles, Coinsurance & Copays)
- Alcohol & Drug Rehab Expenses
- Prescription Medicine
- Over-the-Counter Medicine
- Medical Equipment
- Cosmetic Procedures
- Expenses Reimbursed by an Insurance Provider or Other Health Plan
Have more questions or would like to know more about offering an FSA for your employees? Contact us today!