Asked and Answered: I still can't use my FSA to pay for insurance premiums?

Happy new year! And for many of you, happy new FSA year! With new accounts come common questions, so let's take this time to discuss one of the most-common topics among new FSA holders, insurance premiums.

When it comes to your FSA, using your available funds on eligible expenses can be a great way to save money by using your pre-tax dollars for your medical costs. But as anyone who's used an FSA knows, there are a fair number of rules outlining what those funds can be spent on. And navigating those rules to determine exactly how you should spend your money can be confusing.

There are many types of expenses that are eligible for reimbursement - from copays to bandages. But many people are surprised to discover that your insurance premiums aren't an eligible expense.

What is an insurance premium?

It seems a little silly to define premiums here. But, in order to understand why your insurance premium isn't eligible for FSA reimbursement it's helpful to understand exactly what you're getting when you pay them.

An insurance premium is the amount of money you pay to your insurance company on a regular basis to cover the cost of your insurance plan. The amount you pay your insurance company and how your payments are set up will vary from plan to plan, but the premium always has that same purpose. So, everyone paying premiums to a given insurance company is what allows the insurance company to cover your medical expenses when you file a claim.

Just about everyone has an insurance premium to pay, and most people likely consider those funds to be part of their medical expenses, so it's unsurprising many assume the cost will be eligible for reimbursement.

So why aren't your health insurance premiums considered an eligible expense?

The IRS decides which medical expenses are FSA-eligible. By their definition, all eligible expenses must be related to the prevention, care, treatment, or diagnosis of a condition or disease.

That's a pretty vast category that many expenses fall under. For example - if you need a medication to manage or recover from a disease, sunscreen to prevent sunburns, or even crutches while you recover from an injury, you'll find that these costs are all FSA-eligible. But insurance premiums don't fit this definition.

Your premiums are used to cover the costs of your insurance plan -- not the care itself. Because they don't directly cover medical needs, they're not eligible. On top of that, they're likely already paid for with pre-tax dollars. If you pay your premiums through your employer, chances are you're doing so on a pre-tax basis and again paying for them with your FSA would be like "double-dipping" into tax breaks, which isn't allowed.

What is eligible?

While your insurance premiums don't count as an eligible expense, plenty of other medical costs do. Your FSA will cover medical expenses like appointment copays, hospital stays, emergency room visits, eyeglasses, orthodontic braces, deductibles, prescription medications and many over-the-counter products such as sunscreen, bandages, first aid kits, and so many more.

Most over-the-counter medications are also eligible for coverage as long as you get a prescription from your doctor (think those containing an active medical ingredient such as Tylenol, Claritin, etc.).

These expenses are eligible as long as they are not already covered by your health insurance plan - if your insurance doesn't cover it, or only covers a partial amount, you can use your FSA to cover the out-of-pocket expenses.

You'll also find that medical equipment and household essentials are FSA-eligible expenses. If you need items like braces, kinesiology tape, or crutches to help with injuries, you'll be able to pay for those with FSA funds.

From FSA basics to the most specific account details, in our weekly Asked and Answered column, our team gets to the bottom of your most-pressing flex spending questions. It appears every Wednesday, exclusively on the Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram and Twitter.

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