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Healthcare FSA Limited Purpose Provision
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How does an HSA work if my client has a healthcare FSA?

A group can offer health savings accounts (HSAs) alongside a healthcare flexible spending account (FSA) as long as the group has a "limited purpose provision" added to their healthcare FSA plan document. This can be done by most healthcare FSA administrators. The "limited purpose provision" has two options. The first option is a post deductible amendment that allows medical expenses to be paid with healthcare FSA dollars once the minimum statutory deductible has been met. The second option is a limited purpose provision that excludes medical expenses from the healthcare FSA (pre or post minimum statutory deductible), but includes dental and vision expenses. Check with your FSA administrator to determine which type of limited purpose provision is offered before making FSA elections that could impact how FSA funds can be used. Please note the limited purpose rule also applies to employees whose spouses have an FSA with their employer even if the HSA accountholder's employer does not offer a healthcare FSA. Without the limited purpose provision added to the healthcare FSA plan document, an employee with a healthcare FSA cannot have an HSA. A dependent care FSA is not affected by the addition of an HSA.

IRS Publication 969 covers the Healthcare FSA/HSA stacking rules and "limited purpose provisions" on a high level. Please see "Other Coverage" under the HSA subhead at http://www.irs.gov/publications/p969/ar02.html#d0e172