Limited purpose FSA

[Gin1984]

I read that once you spend your deductible, you could pay your medical expenses using a limited purpose FSA, up to your out of pocket max.  Is this true?

[seattlecyclone]

Yes.

[Tremeroy]

That is not my understanding. According to Publication 969, a limited purpose FSA may only be used for the following categories of expenses:

• Liabilities incurred under workers' compensation laws, tort liabilities, or liabilities related to ownership or use of property.
• A specific disease or illness.
• A fixed amount per day (or other period) of hospitalization.
• Accidents.
• Disability.
• Dental care.
• Vision care.
• Long-term care.

Further, the specific allowable uses of your FSA should be particular to your plan's documents. As an example, my limited-purpose FSA may only be used for vision & dental care.

It is possible that I am mistaken, but I haven't read anything similar to what the two of you have seen. (I would actually be happy if there was such an exemption!)

[seattlecyclone]

From Publication 969:

Other employee health plans. An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. Health FSAs and HRAs are discussed later.

However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements.

• Limited-purpose health FSA or HRA. These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible.
• Suspended HRA. Before the beginning of an HRA coverage period, you can elect to suspend the HRA. The HRA does not pay or reimburse, at any time, the medical expenses incurred during the suspension period except preventive care and items listed under Other health coverage. When the suspension period ends, you are no longer eligible to make contributions to an HSA.
• Post-deductible health FSA or HRA. These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met.
• Retirement HRA. This arrangement pays or reimburses only those medical expenses incurred after retirement. After retirement you are no longer eligible to make contributions to an HSA.

I guess you're technically correct (which is the best kind of correct!) that a "limited-purpose FSA" cannot be used for post-deductible medical expenses. However, a "post-deductible FSA" can! My employer offers an account that seems to be both of these in one, and they just call it a "limited-purpose FSA." You'll have to check into the particulars of your company's plan to see exactly what it covers.

[Gin1984]

From Publication 969:

Other employee health plans. An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses generally cannot make contributions to an HSA. Health FSAs and HRAs are discussed later.

However, an employee can make contributions to an HSA while covered under an HDHP and one or more of the following arrangements.

• Limited-purpose health FSA or HRA. These arrangements can pay or reimburse the items listed earlier under Other health coverage except long-term care. Also, these arrangements can pay or reimburse preventive care expenses because they can be paid without having to satisfy the deductible.
• Suspended HRA. Before the beginning of an HRA coverage period, you can elect to suspend the HRA. The HRA does not pay or reimburse, at any time, the medical expenses incurred during the suspension period except preventive care and items listed under Other health coverage. When the suspension period ends, you are no longer eligible to make contributions to an HSA.
• Post-deductible health FSA or HRA. These arrangements do not pay or reimburse any medical expenses incurred before the minimum annual deductible amount is met. The deductible for these arrangements does not have to be the same as the deductible for the HDHP, but benefits may not be provided before the minimum annual deductible amount is met.
• Retirement HRA. This arrangement pays or reimburses only those medical expenses incurred after retirement. After retirement you are no longer eligible to make contributions to an HSA.

I guess you're technically correct (which is the best kind of correct!) that a "limited-purpose FSA" cannot be used for post-deductible medical expenses. However, a "post-deductible FSA" can! My employer offers an account that seems to be both of these in one, and they just call it a "limited-purpose FSA." You'll have to check into the particulars of your company's plan to see exactly what it covers.

Where I had read it was on my husband's company's website but I never like to assume the company is right without a second check.
"A Limited Purpose FSA allows you to reimburse yourself for qualified dental or vision expenses prior to meeting your deductible. After meeting your deductible, you can reimburse yourself for qualified medical, dental, prescription or vision services. You must be enrolled in the YOUR HSA-Eligible Plan and have a Health Savings (HSA) account to contribute to a Limited Purpose FSA."

[MDM]

From Publication 969:

After retirement you are no longer eligible to make contributions to an HSA.

A good example of "you can't believe everything you read, even in IRS publications."  In other words, the quoted line is not correct.  For comparison, see https://www.law.cornell.edu/uscode/text/26/223.

Now, if Pub. 969 said "After retirement you are eligible for Medicare you are no longer eligible to make contributions to an HSA," that would be correct.  Fortunately for many, retirement is not synonymous with Medicare eligibility.

[Tremeroy]

From Publication 969:

I guess you're technically correct (which is the best kind of correct!) that a "limited-purpose FSA" cannot be used for post-deductible medical expenses. However, a "post-deductible FSA" can! My employer offers an account that seems to be both of these in one, and they just call it a "limited-purpose FSA." You'll have to check into the particulars of your company's plan to see exactly what it covers.

That is great info, Seattlecyclone & thank you for clearing it up. It is time for me to start lobbying for my employer to add a third permitted purpose to our "limited purpose" FSA!