When it comes to health care spending options, there are many possibilities employers can offer.
Whether it is a health savings account (HSA) or flexible spending account (FSA), both are great spending tools for employees with consumer-directed health plans that can be used for health care expenses.
However, while many groups offer an HSA paired with a limited purpose FSA (different than a post-deductible FSA), employees may not understand how the two accounts work together – and how, together, they can potentially help employees stretch their dollars.
Normally, if an HSA with consumer-directed health plan is elected, employees are not allowed to have an additional spending account - such as an FSA - that pays for deductible expenses. However, if an FSA is limited to only pay for vision, dental and orthodontia expenses during the deductible phase of the health plan, it can be used in tandem with an HSA. This means employees can contribute to an FSA while still being eligible to establish and contribute to an HSA but, as mentioned, employees can only use funds from their limited purpose FSA for expenses such as orthodontic care, glasses, Lasik, or annual dental exam. Additionally, funds within an FSA must be used by the year-end or they are forfeited. This differs from the HSA, which allows dollars to carry over year to year.
By pairing an HSA and limited purpose FSA together, employees have the opportunity to preserve their HSA contributions for health care expenses that arise that are not covered by an FSA. Beneficially, with both an HSA and limited purpose FSA, employees can still contribute the maximum contribution to each account, receiving better tax savings.
Even with these benefits, an HSA paired with a limited purpose FSA may not be right for all employees. The pairing of the two accounts is best suited for those who commit the maximum contribution to both accounts, with the goal that the limited purpose FSA will be used for planned dental and vision expenses, allowing the HSA to be used for other medical expenses.
What’s more, when employers offer both an HSA and limited purpose FSA through the same health spending account administrator, like Further, the guess work of which medical expenses needs to be pulled from the spending account is removed. The account administrator can see that an employee has both accounts and used the limited purpose FSA in the appropriate instances. However, when an HSA and limited purpose FSA are offered through different administrators, it is then up to the employee to identify the correct account for spending.
To learn more, visit the Further Learning Center, or reach out to your Further representative.
This content is for informational purposes only, you should not construe this information as legal, tax, investment, financial, or other advice. Nothing contained herein constitutes a solicitation, recommendation, endorsement, or offer by Further to buy or sell any securities or other financial instruments. There are risks associated with investing in securities. Investing in stocks, bonds, exchange traded funds, mutual funds, and money market funds involve risk of loss. Loss of principal is possible.