The introduction of Health Savings Accounts (see brief description below and/or visit the HSA section of our website) has presented us with another opportunity – limited purpose health FSAs. The IRS guidance confirms that if an individual is covered by a high deductible health plan (HDHP) and contributes to the Health Savings Account, he may continue to participate in a Flexible Spending Account on a limited basis. A limited purpose health flexible spending account may reimburse for vision and dental expenses. This type of limited FSA may also reimburse for medical expenses incurred after the deductible has been met.
If you decide to implement a HDHP with a Health Savings Account, you should:
Consider informing all your employees that they may continue to participate in your Flex plan but on a limited basis (dental, vision and dependent day care expenses only) if they become covered by an HSA. They may participate on a limited basis only if the HDHP/HSA is implemented in synch with the Flex Plan renewal date. A participant may not change to a limited FSA mid-year to become eligible to contribute to an HSA.
Employers are required to amend their Flex plan documents if they implement an HSA eligible group health plan or have employees who are covered elsewhere and wish to participate in the FSA on a limited basis. FlexBank is able to provide this service for you.
Please note, if you implement an HDHP/HSA along with a Limited FSA, there are special rules.
(Click here for a Limited FSA, HSA Enrollment Form)
The good news. HSAs are the latest government program passed to assist in the payment of medical care. HSAs are designed to encourage employees to consume medical care wisely. To encourage such consumption, all monies left unspent at the end of the year roll forward to the next year. An employee, an employer, or both can make contributions tax free. HSA funds may be used to pay for out of pocket medical, vision, and dental expenses. HSA accounts are essentially interest bearing bank accounts and, as such, are trusteed by participating banks.
HSAs may be established only in conjunction with government specified high deductible health plan (HDHP). In order for one of your employees to establish an HSA, you the employer, must provide the underlying high deductible plan either as your sole group medical insurance plan, or as a dual option where employees may pick the plan of their own choosing. Annual contributions are limited annually. Click here for Indexed Amounts for Health Savings Accounts. No insurance benefits may be paid (other than a limited number of preventive expenses) by the underlying high deductible insurance plan until the annual deductible has been met. This means that the insurance plan may not include a prescription drug card, have a doctor office co-pay, nor can an insured fully participate in a general-purpose Flexible Spending Account (FSA).