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The Limited Purpose Flexible Spending Account for HSAs

For small and mid-sized organizations that have -- or are considering -- a health savings account for their workforce, Ceridian's Limited Purpose Flexible Spending Account takes service to new levels. Generally used in conjunction with a health savings account (HSA), a Limited Purpose Flexible Spending Account is a tax savings account that reimburses employees for eligible dental and vision care expenses.

About health savings accounts
An HSA is a tax-favored savings vehicle designed to help individuals pay for eligible medical expenses, either while employed or during retirement. To be eligible to contribute to an HSA, the individual must be covered under a qualified high-deductible health plan and may not be covered under any other health insurance that is not a high-deductible health plan, such as an HMO.

HSAs are attractive to employers because they lower the organization's taxable payroll. As an incentive, many employers choose to pass on a portion of this savings as contributions to their employees' HSAs.

HSAs have a unique tax structure. The employer and employee contributions to HSAs are tax free, earnings on investments within the HSA are tax free and withdrawals from the account to pay for eligible out-of-pocket medical expenses are also tax free. This triple tax savings -- contributions, earnings and withdrawals from the account are tax advantaged -- is without precedent in the tax code. In addition, unlike traditional IRAs, no income restrictions are placed on participating in an HSA. (Source: Center on Budget and Policy Priorities, www.cbpp.org/9-20-06health.pdf)

With an HSA, there is no use-it-or-lose-it rule. HSAs are individually owned and completely portable. Each year, unused funds remaining in the account gain interest or earnings tax free and continue to be available for future use. Distributions from an HSA for expenses other than eligible medical expenses are subject to income tax and an additional 10 percent tax. Once an individual reaches age 65, however, there is no additional tax on these distributions.

Welcome to the future: the Limited Purpose Flexible Spending Account
Ceridian Product Manager Matt Lupori believes that the Ceridian Limited Purpose Flexible Spending Account (FSA) fills a very real need for employers who seek to balance the rising cost of health care with the desire to deliver meaningful assistance to their employees. "Employees enrolled in an HSA are not eligible to participate in a traditional Flexible Spending Account," he says, "and that's why our Limited Purpose FSA is such a great product. Now, companies can help their employees maximize the benefits of their HSAs by offering a Limited Purpose FSA to reimburse their eligible dental and vision care expenses. It's the kind of solution that can make a real difference for employees -- and it makes an HSA even more attractive for employers who want to get a handle on rising health care costs while delivering substantive solutions to their workforce."

What's limited in the Limited Purpose FSA?
The Limited Purpose FSA works the same way a traditional FSA does: employees decide how much money to contribute, and that amount is deducted tax free from their paycheck. Just like a traditional FSA, any money remaining in the account at the end of the plan year is forfeited. So why is this called the "Limited Purpose" solution?

"The real difference between a traditional and Limited Purpose FSA is that general medical expenses are not eligible for reimbursement under a Limited Purpose FSA," says Lupori. "This type of flexible spending program is designed for consumers who have an HSA and are not permitted to be covered by a traditional FSA while contributing to that HSA. Ceridian's Limited Purpose FSA allows them to submit claims for certain eligible dental and vision care expenses while providing access to all of Ceridian's superior service tools such as contribution calculators and online claims submission."

Give your employees the help they need
"One fundamental purpose of an HSA," Lupori explains, "is to allow individuals to use pretax money to offset the amount they are required to spend out of pocket before the High Deductible Health Plan begins paying their medical expenses. Many consumers prefer not to use their HSA for dental and vision care expenses. Instead, they choose to use their HSA to cover the deductible and other out-of-pocket cost associated with their high deductible health plan. That's where our Limited Purpose FSA comes in. If you're a small or mid-sized organization that has -- or is considering -- an HSA for your employees, Ceridian's Limited Purpose FSA is ideal. This solution takes service to a new level."

Contact your Ceridian representative to learn more about Ceridian's Limited Purpose FSA.