In running the FSAstore.com and HSAstore.com Learning Centers, there are some questions that always seem to pop up. And the subject of using a flexible spending account (FSA) to cover health insurance premiums is one of the most-common questions we get.
So, since open enrollment is about to kick off, and we probably have a whole new group of future tax-free healthcare account owners checking out the site, let's revisit this topic to see if we can clear the air a little.
First, a quick overview of premiums
Premiums are amounts paid to an insurance company to cover the cost of medical expense coverage. Their value is heavily based on factors like:
Type of health plan coverage
Likelihood of a claim being made
Where the policyholder lives or operates a business
Inherent risk of health problems or behavior
Competition with other insurance companies.
In short, premiums are an insurance company's way to cover any liabilities that come with the plans they underwrite. State insurance regulators work to make sure companies have enough reserves to cover any claims, to ensure that medical expenses are covered. Premiums can fluctuate after each policy period, based on a number of health care costs.
For policyholders to continue receiving coverage through their insurance plans, premiums must be paid according to the policy's payment plan schedule. It's left up to policyholders to decide where the funds should come from. And unfortunately, the IRS doesn't allow for those funds to come from your FSA.
But don't take our word for it - instead, review IRS code 213(d), which defines the aspects of medical care for which expenses are FSA eligible:
"...medical care includes amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body."
In other words, health insurance premiums fall outside of this definition, since they pay for coverage, but aren't directly connected to the actual care.
Are premiums ever covered by health care accounts?
FSA holders can't count insurance premiums as eligible expenses, but health reimbursement arrangements (HRAs) and health savings accounts (HSAs) offer slightly more options.
In a small number of exceptions an HSA (health savings account) can cover long term care, or premiums for spouses and qualified dependents when the account holder is receiving health care continuation benefits (COBRA) or federal/state unemployment compensation. But, for the most part, they won't cover premiums. HRA coverage of premiums is even more complex, so don't count on it.
If you have an FSA you can't use these tax-free funds on premiums. But don't let that be a deal breaker. Your FSA covers thousands of FSA-eligible items, alongside other vital out-of-pocket expenses like co-payments, deductibles, over-the-counter items, and more.
Used for the treatment of muscle and joint aches, painful gums, sprains, back pain and the pain and stiffness associated with arthritis.
From FSA basics to the most specific account details, in our weekly Asked and Answeredcolumn, our team gets to the bottom of your most-pressing flex spending questions. It appears every Wednesday, exclusively on the FSAstore.com Learning Center. And for the latest info about your health and financial wellness, be sure to follow us on Facebook, Instagram and Twitter.