Limited use health fsa

[Guest Nini]

It is my understanding that OTCs are not reimbursable under a limited use health fsa - however, the document that I am reviewing states that OTCs for dental, vision and preventative care are reimbursable.

Any thoughts?

Thanks.

[papogi]

OTC can be reimbursable under a limited-purpose FSA. They typically cover dental, vision, preventive care, out of pocket amounts for covered items after the deductible has been met, and OTC drugs.

[Guest TXCafe]

OTC can be reimbursable under a limited-purpose FSA. They typically cover dental, vision, preventive care, out of pocket amounts for covered items after the deductible has been met, and OTC drugs.

It depends on what kind of limited-purpose FSA you have. There is a post-deductible FSA which reimburses "out of pocket amounts for covered items after the deductible has been met", a limited purpose FSA which reimburses dental, vision, and preventive care, and there is a combo post-deductible/limited purpose which reimburses only dental, vision, preventive care AFTER the deductible has been met. It's my understanding that the post-deductible can reimburse anything that would qualify under a regular Medical FSA but only after the HDHP deductible has been met. The limited-purpose however would only reimburse for medical, dental, and preventive care...regardless of the deductible. EBIA also suggests and employee only or employee/dependent only if the spouse's eligibility for an HSA is the concern.

Check out IRS Notice 2005-86. It outlines the Limited Purpose FSA, the Post-Deductible FSA, and the combo. It doesn't mention the employee only or dependent/employee only...that's something the EBIA suggests as an option in their Cafeteria Plans Manual.

However, in reference to the original question, I don't think any of that limits the dental, vision, or preventive care expenses to prescription or physician provided only. I think you're not going to find a ton of OTC expenses that fall within those three categories that would qualify under 502 or 213 with the exception of maybe eye care such as contact solution etc. I don't see anything in the regulations that prohibits the reimbursement of OTC expenses within the limitations of the plan. However, I do think the regulations prohibit OTC expenses not within those limitations (for example, cold medicine or cough syrup which are clearly not for vision, dental, or preventive care) from being reimbursed under a limited purpose (dental/vision/preventive only) FSA. I guess I took the long way around answering your question but that's my opinion.

[papogi]

TXCafe, I also agree with your review. While it is OK to have "OTC" in the document, it does appear that very little will fall under that definition that would also satisfy the definition of preventive care or dental, vision, etc. that a "limited-purpose" FSA must abide by (one that pays for certain expenses even before the HDHP deductible has been met). You are absolutely correct.