I'm asking a follow-up to my other question...

I'm currently enrolled in an FSA for my employer sponsored health plan. I'm considering leaving that health plan in favor of an individual (non-HSA) health plan that is about 50% cheaper for similar benefits.

My HR department says that I cannot use FSA to pay for any premiums regardless if I've paid them pretax or post-tax. I know that FSA cannot be used for premiums paid with pretax money, but I thought a post-tax premium would qualify.

Is there some definitive source that will tell me one way or the other? Does an FSA have the option to determine what qualifies as an expense or do they all have to follow some Federal or State guidelines?

Does an FSA provided by my employer differ in any way? (I'm not sure if there is such a concept as a non-employer sponsored FSA).

I'm speculating if my company (about 100 employees but only about 1/2 can afford the health insurance) is trying to keep me on their sponsored plan just to gain the tax benefits. The premiums are jumping every year as the (relatively small) pool of employees are maxing out their medical expenses...

  • 2
    if its post-tax, why do you need it in FSA anyway? – littleadv Oct 28 '11 at 5:03
  • Because of the pretax benefit that FSA offers. – Tim Reddy Oct 28 '11 at 15:28
  • @littleadv - Medical insurance through your employer is paid pretax. If you buy it outside your company, you have a right to use the pre-tax FSA money. Making the external insurance plan cost pre-tax. – JTP - Apologise to Monica Oct 28 '11 at 17:14
  • @JoeTaxpayer so what's the post-tax the OP mentioned? It got me a bit confused, because I know what you said. – littleadv Oct 28 '11 at 17:20
  • He was only saying that by paying outside the company plan, it's from his cash, he uses post tax money. It's the FSA that can help him get reimbursed pretax. He was acknowledging that the normal company ins premium is with pretax money and comparing to this process of using outside insurance. Make better sense? – JTP - Apologise to Monica Oct 28 '11 at 18:58

They are wrong. If they offer an FSA, they must abide by the rules regarding FSA eligible expenses, plain and simple. They can offer a lower limit than the general maximum ($5K/yr?) and they can allow a grace period on expenses, or not. But, they must allow reimbursements for reimbursable items. Medical Insurance premiums are included. See this comprehensive list.

On the IRS web site, Pub 969 discusses FSAs at a higher level and indicates that Publication 502 has the detailed list of reimbursable expenses. Medical insurance is listed. I offer this chain so one can find the data directly from the IRS and not claim that Wikipedia might not be accurate.

At this point you need to decide how far you want to go with your benefits department on this. Do they offer a copy of what they claim is the accepted list of reimbursables?

  • Are FSAs tied to the specific employer sponsored health insurance plan or can they be used for any medical expenses on any plan? – Tim Reddy Oct 29 '11 at 17:39
  • For the fact that the employer sponsored plan would come from your check pretax, the FSA would not apply, it would be good for the rest of the laundry list of other allowed items, though. i.e. no double dipping. – JTP - Apologise to Monica Oct 29 '11 at 17:45
  • Sorry, I wasn't specific enough. If I have my own individual health insurance plan, but use my employer's FSA, are there any restrictions in that respect? – Tim Reddy Oct 29 '11 at 17:52
  • That was the whole point of my links in the original answer. If your employer offers FSA, I believe they must follow the rules for what items are reimbursed. They cannot exclude medical insurance bought elsewhere. – JTP - Apologise to Monica Oct 29 '11 at 18:25

You can never use a health FSA for individual health insurance premiums. Moreover, FSA plan sponsors can limit what they are will to reimburse. While you can't use a health FSA for premiums, you could previously use a 125 cafeteria plan to pay premiums, but it had to be a separate election from the health FSA. However, under N. 2013-54, even using a cafeteria plan to pay for indivdiual premiums is effectively prohibited.

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