QUESTION: Our company sponsors an HDHP and an HSA-compatible limited-purpose health FSA that reimburses vision and dental expenses without regard to the HDHP deductible. What dental expenses can our health FSA cover and remain HSA-compatible?
ANSWER: No formal guidance exists regarding what constitutes dental care for HSA-compatibility purposes, so the answer is not entirely clear. By way of background, an individual who is covered under a general-purpose health FSA (i.e., a health FSA that reimburses all Code § 213(d) medical expenses without regard to the HDHP deductible) is not eligible for HSA contributions. That’s because a general-purpose health FSA is impermissible “other coverage” under the HSA rules. But if the health FSA covers only vision, dental, or preventive care expenses, then an individual covered by that health FSA may still be an HSA-eligible individual. Health FSAs of this type are sometimes called limited-purpose health FSAs.
A key issue for limited-purpose health FSAs is determining which expenses are HSA-compatible “dental expenses.” The HSA statute includes “coverage (whether through insurance or otherwise) for dental care” as one of the types of non-HDHP coverage that will not interfere with HSA eligibility. But neither the statute nor the IRS has defined what qualifies as “coverage for dental care.” There is little doubt that most dental expenses (such as fillings, exams, or orthodontia) will fall squarely within any definition of dental care. But some expenses involving the teeth or mouth potentially go beyond dental care and cross over into the territory of medical care coverage, such as treatment for temporomandibular joint syndrome (TMJ) or a dental injury caused by an accident. Pending further IRS guidance, the administrator of your company’s limited-purpose health FSA may want to be cautious and deny reimbursement of dental expenses that may also be medical in nature. The risk of allowing medical benefits to be paid under your limited-purpose health FSA is that individuals who are covered by the arrangement could lose their HSA eligibility. While a limited-purpose health FSA plan document may limit dental coverage by reference to the statutory language, you may want to consider identifying specific procedures that will not be covered. Also, be sure your plan document includes language that preserves the plan administrator’s discretionary authority to interpret the plan’s coverage limitations.
Note that limited-purpose health FSAs cannot pay or reimburse dental or vision insurance premiums. This is because health FSAs cannot pay or reimburse insurance premiums of any kind. Note also that participants in a limited-purpose health FSA must provide information from an independent third-party substantiating that their expenses are for a permitted type of care.
For more information, see EBIA’s Consumer-Driven Health Care manual at Sections XI.B (“Permitted Insurance and Permitted Coverage Do Not Prevent HSA Eligibility”), XI.E (“Specially Designed Health FSA or HRA Coverage Will Not Prevent HSA Eligibility”), and XI.H (“What Are the Consequences of Having Impermissible Non-HDHP Coverage?”). See also EBIA’s Cafeteria Plans manual at Sections XVI.K.4 (“Can an Eligible Individual Also Participate in a Health FSA or HRA?”) and XX.H (“Health FSAs Cannot Reimburse Insurance Premiums”). You may also be interested in our upcoming webinar “Learning the Ropes: An Introduction to HRAs and HSAs” (live on 8/29/2018).
Contributing Editors: EBIA Staff.