Limitless potential in pairing HSAs and limited purpose FSAs

In this first-of-its-kind study, we examine the intersection of individuals who own both a health savings account (HSA) and a limited purpose flexible spending account (LPFSA). Employee Benefit Research Institute (EBRI)’s HSA and FSA databases contain information on nearly 300,000 accountholders who hold both accounts. Workers with both an HSA and an LPFSA contribute more to their HSAs than workers who only have an HSA ($3,419 vs. $2,289). Workers with both accounts contribute an average of $957 to their LPFSAs as well, suggesting that they are well-positioned to take advantage of the tax benefits these accounts offer. However, distribution activity suggests that workers are not fully taking advantage of these accounts. Accountholders with LPFSAs may be overestimating their expected spending on dental and vision expenses, and, for those with post-deductible LPFSAs, their total health care spending. • Among accountholders who have both an HSA and an LPFSA, 29% never took a distribution from their LPFSAs, and 63% still withdrew money from their HSAs. • Those with post-deductible LPFSAs were more likely to take a distribution than accountholders without the post-deductible feature, but 64% of LPFSA accountholders still withdrew money from their HSAs. Employers have an opportunity to better position their employees for short- and long-term health care spending and saving success by pairing an LPFSA with an HSA. But they also need to dedicate time to educating employees on the accounts’ benefits and how they can work together.