An emerging but underutilized strategy involves pairing a health savings account (HSA) with a limited purpose flexible spending account (LPFSA) to save on future healthcare costs. This approach allows employees to maximize the benefits of their health and retirement investments.

“Why folks often wish to pair an LPFSA with an HSA is that many folks are using the HSA like an IRA, because they’re saving it for the future,” Michael C. Eldredge, HSA product manager at Inspira Financial, said during a From Day One webinar. 

In collaboration with the Employee Benefit Research Institute (EBRI), Inspira Financial released findings that employees who own both an HSA and an LPFSA invest about $3,419, yet, 30% don't withdraw from their LPFSA. 64% of workers with both accounts also still withdraw money from their HSA per year. 

The information sheds light on how workers with both accounts are missing significant cost-saving opportunities, and not using their LPFSAs to their fullest potential. Employers can support their workers where a major concern is securing future care benefits by informing them of this strategy. 

Stretching Your Healthcare Dollars 

Inspira Financial is an organization committed to providing health care, retirement, wealth, and benefits solutions to support the employee health and wealth journey. Their collaborative report with the EBRI outlined several ways workers can achieve maximum financial healthcare benefits. 

One way to maximize long-term savings is to set aside an amount that optimizes growth over time in a health savings account. Every dollar contributed reduces taxable income, and funds can grow tax-free. For example, investing $1,000 per year in an HSA could grow to over $165,000 in 40 years, while contributing less significantly reduces the total savings

Another particular advantage, Eldredge notes, is that LPFSA funds can cover preventive care that isn't covered by an employer’s health plan such as dental and vision or care for chronic health conditions. This means workers can save more by not withdrawing from their HSA accounts for those procedures. 

“It’s an awareness point to make sure folks realize they don’t accidentally spend from the HSA, for let’s say an online bill payment or something like that when they could have done it from the LPFSA.” 

Unused LPFSA funds are also carried over the next year and often have a grace period so workers have the chance to use all of it instead of losing what’s left of it. 

A noticeable trend with Americans who invest in HSA/FSAs alone strategize pre-tax savings to determine estimations for future medical care and copays, according to the Consumer Healthcare Products Association (CHPA). 

Inspira estimates that on average, men must save $184K for health care expenses in retirement, women must save $217K, and couples must save $351K. Undoubtedly, these are estimates that Americans with both accounts base their strategic planning on. 

This reflects a growing mindset shift occurring as more workers learn the value of HSA and LPFSA in avoiding paying more out-of-pocket and maximizing reimbursement. 

American Use and Perception of HSA/FSAs 

A 2023 CHPA study revealed that only 1 in 5 Americans have an HSA or FSA, and most are unfamiliar with their purpose. As a result, many without these accounts were unaware of the 2020 legislation that made over-the-counter medications and menstrual products eligible for reimbursement through HSAs and FSAs.

Half of American workers with HSA/FSA accounts plan to invest less than $2,000 annually, unaffected by the 2020 legislation expanding eligible reimbursements to over-the-counter medications and menstrual products. Instead, 81% of workers with these accounts are focusing their investments on reimbursable medical expenses and preparing for high-cost medical and dental needs.

While most American workers, both those with and without HSA/FSA accounts, agree that more healthcare expenses should qualify for reimbursement, this sentiment alone isn’t motivating them to contribute more.

Employers can leverage this opportunity to educate workers about the potential to reduce out-of-pocket healthcare costs by combining HSAs with LPFSAs. Eldredge highlights that when employees understand how an LPFSA can preserve HSA funds by covering eligible dental and vision expenses with tax benefits, they can better plan for maximum reimbursement and long-term savings.

Editor's note: From Day One thanks our partner, Inspira Financial, for sponsoring this webinar. 

Stephanie Reed is a freelance news, marketing, and content writer. Much of her work features small business owners throughout diverse industries. She is passionate about promoting small, ethical, and eco-conscious businesses.