Can I Use FSA to Pay Off Old Medical Bills?

A Flexible Spending Account (FSA) offers a tax-advantaged way to save and pay for qualified medical expenses. This employer-sponsored benefit allows participants to contribute pre-tax dollars from their paycheck into a dedicated account for out-of-pocket healthcare costs. Understanding the rules and timelines for FSA reimbursements, especially for past medical bills, is important.

Defining Eligible Medical Expenses for FSA Reimbursement

Flexible Spending Accounts cover expenses for the prevention or alleviation of a physical or mental defect or illness, as defined by IRS guidelines. Eligible expenses include doctor visits, prescription medications, dental care, vision care, co-pays, and deductibles. Over-the-counter medicines and drugs may also be eligible, often requiring a doctor’s prescription.

Certain expenses are not eligible for FSA reimbursement. These include cosmetic procedures, health club dues, and general wellness items like vitamins or dietary supplements unless prescribed for a specific medical condition. The eligibility of an expense is determined by the date the medical service was incurred, meaning the date the service was provided. The date a bill is received or paid does not determine its eligibility for a specific plan year.

Key Timelines for FSA Reimbursement

Flexible Spending Accounts operate on a specific plan year, which is the 12-month period for which funds are allocated. Funds contributed to an FSA are designated for use within this particular period. For an expense to qualify for reimbursement, the medical service must have been incurred within the applicable plan year.

Many FSA plans offer a grace period, which provides an extension of time after the plan year ends. This grace period typically lasts up to 2.5 months, allowing participants to incur new eligible expenses and use remaining FSA funds from the prior plan year. For example, if a plan year ends on December 31, a grace period would typically extend until March 15 of the following year, during which prior year funds can be used for services received within that extended timeframe. Claims submitted during the grace period are usually applied to the previous year’s remaining balance first.

Following the plan year and any grace period, a “run-out period” is typically provided. This is a timeframe during the new plan year when participants can submit claims for eligible expenses that were already incurred within the previous plan year or grace period. While the duration of a run-out period is set by the employer, a common length is 90 days after the plan year ends. If a plan year ends December 31, a 90-day run-out period would typically mean claims could be submitted until March 31 of the following year. The run-out period allows for claims submission for past incurred expenses, but it does not allow for new expenses to be incurred.

An expense must have been incurred during the specific plan year it pertains to, or within an employer-provided grace period. For instance, if a medical service was received in October of the previous year, and the plan year ended December 31, a claim for that service would need to be submitted before the end of the run-out period in the current year, typically around March 31. If the service was incurred outside these defined timeframes, it is not eligible for reimbursement, regardless of when the bill was received or paid.

The Reimbursement Process for Medical Bills

Once an expense has been identified as eligible and incurred within the appropriate timeline, the next step involves submitting a claim for reimbursement. Proper documentation is essential for this process to ensure compliance with IRS regulations and plan rules. Required documentation typically includes an itemized receipt or statement from the service provider. This documentation must clearly show: the date(s) the service was provided, a description of the service, the name of the patient, and the total amount charged.

In many cases, an Explanation of Benefits (EOB) from an insurance carrier can also serve as sufficient documentation, as it often contains the necessary information. Credit card receipts or canceled checks alone are generally not sufficient as they lack the detailed information required to verify eligibility. Participants may submit claims through various methods, including online portals, mobile applications, or by mail or fax.

After submission, claims typically undergo a processing period. This processing time can vary but is often completed within a few business days to a couple of weeks. If additional documentation is required by the FSA administrator, participants are usually notified and given a timeframe, such as 90 days, to provide the necessary information. Failure to provide adequate documentation can result in the denial of a claim.