What is 'Limited Purpose Flexible Spending Arrangement (LPFSA)'

A Limited Purpose Flexible Spending Arrangement (LPFSA) is a medical savings plan, for use with an HSA, reserved for paying 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, prescription glasses, et al. Some employers also allow plan participants to use LPFSA funds to pay for qualified medical expenses once they meet their health insurance deductible. The use of LPFSA funds to pay for such expenditures may be allowable after the individual reaches their 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 ($2650/26 weeks) from each paycheck. The entire benefit is accessible even if all payments have not 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.

  1. Flexible Spending Account - FSA

    A flexible spending account is a type of savings account, usually ...
  2. Employer-Sponsored Plan

    An Employer-Sponsored Plan is a benefit plan offered to employees ...
  3. High-Deductible Health Plan - HDHP

    A health insurance plan with a high minimum deductible that that ...
  4. Health Reimbursement Account - ...

    A health reimbursement account (HRA) consists of employer-funded ...
  5. Payroll Deduction Plan

    A contribution plan in which an employer deducts a specified ...
  6. IRS Publication 502: Medical And ...

    A document published by the Internal Revenue Service detailing ...
Related Articles
  1. Financial Advisor

    HSAs and FSAs: How to Decide Between Them

    FSAs and HSAs are both excellent ways to help cover a portion of medical costs with pre-tax dollars. Here's how to decide between the two.
  2. Insurance

    Health Savings vs. Flexible Spending Accounts

    When it comes to medical expenses, there are many accounts that provide tax advantages. HSAs and FSAs are two options often offered by employers.
  3. Financial Advisor

    How to Help Clients Navigate Open Enrollment

    With companies trying to pass on more costs to employees, making the right choices during open enrollment is more important than ever.
  4. Taxes

    Save Money By Spending With A FSA

    ... And why using a FSA can help you beat the high cost of health care.
  5. Managing Wealth

    Pros And Cons Of A Health Savings Account (HSA)

    Health Savings Accounts let you pay health care costs with pre-tax dollars.
  6. Insurance

    Fighting The High Costs Of Healthcare

    If your employer is cutting medical benefits, a health savings account may be right for you.
  7. Financial Advisor

    IRS Sets 2016 HSA Deduction Limits

    Contribution limits for HSA plans have increased slightly for 2016. Here's a breakdown of what they are and how they work.
  8. Insurance

    How to Maximize the Use of Your HSA

    A health savings account is an often misunderstood financial planning tool.
  1. Is dental insurance tax deductible?

    Find out whether the actual expense of dental insurance premiums can be deductible on your income taxes, and learn about ... Read Answer >>
Hot Definitions
  1. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  2. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  3. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  4. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  5. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  6. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
Trading Center