What is Limited Purpose Flexible Spending Arrangement (LPFSA)
A Limited Purpose Flexible Spending Arrangement (LPFSA) is a savings plan to be used with an HSA. It is reserved for the payment of dental and vision expenses. A limited purpose FSA is a more restrictive version of a standard health flexible spending account (FSA). Unlike a standard FSA, employees may use an LPFSA in conjunction with a Health Savings Account (HSA).
BREAKING DOWN Limited Purpose Flexible Spending Arrangement (LPFSA)
Qualified dental and vision expenses include dental cleanings, fillings, vision exams, contact lenses, and prescription glasses. Some employers also allow plan participants to use LPFSA funds to pay for qualified medical expenses once the participant meets his or her health insurance deductible. The limitation exists because HSA holders cannot have medical coverage other than a high-deductible health insurance plan, dental insurance, and vision insurance. There are a few other less common exceptions.
Employees may use LPFSA funds to pay for preventive care expenses not covered by the health plan. However, most health plans thoroughly cover in-network preventive care expenses with no additional cost to the insured. Added insured costs include deductible requirements and co-insurance, or co-payments. The Affordable Care Act requires insurers to cover several preventive services for men, women, and children without additional expense to the insured.
LPFSAs, like FSAs, are only accessible to employees whose employers make them available. The LPFSA is not available to the self-employed, unemployed, retired, and employees of a business that does not offer an LPFSA. The 2018 maximum contribution to an LPFSA is $2,650, which is indexed to inflation. Employers, however, may place a lower limit on contributions.
LPFSA Contributions and Carry-Forward Amounts
Employers deduct LPFSA contributions in equal amounts from each paycheck. For example, if a bi-weekly paid employee opts to contribute $2,650, the employer deducts $101.92 ($2,650/26 weeks) from each paycheck. The entire benefit is accessible even if not all payments have been satisfied. For example, if the employee required surgery at the beginning of the year but contributed only once to the account, the full amount of $2,650 is available for their use.
LPFSA funds are typically accessible via a payment card. If not available, employees submit claim forms along with itemized receipts and the explanation of benefits (EOB) for reimbursement by check or direct deposit.
LPFSA accounts are “use it or lose it" funds. However, if money remains in the account at the end of the year, up to $500 may be carried over to the following year or the remaining balance must be used within the first 2 1/2 months of the following year. Employers have the flexibility to include or exclude those provisions. For more information, see How Flexible Spending Accounts Work and Comparing Health Savings and Flexible Spending Accounts.