Can You Use Your FSA for Insurance Premiums?

A Flexible Spending Account (FSA) is an employer-sponsored benefit that allows you to set aside money for healthcare costs before taxes are calculated on your income. This account is established through your employer, who may also contribute to it. The primary function of an FSA is to lower your taxable income while providing a dedicated source of funds for out-of-pocket medical expenses. You contribute to the account via payroll deductions and submit a claim to the FSA administrator for reimbursement.

The General Rule for Insurance Premiums

As a general rule, you cannot use funds from your Flexible Spending Account to pay for insurance premiums. The Internal Revenue Service (IRS) establishes the guidelines for “qualified medical expenses,” and insurance premiums are explicitly excluded from this definition for FSAs. The reasoning is based on the distinction between paying for medical care and paying for the right to receive care. FSA funds are intended for the direct costs of medical products and services.

This rule is detailed in IRS Publication 969 and the Internal Revenue Code. This section defines medical care as amounts paid for the “diagnosis, cure, mitigation, treatment, or prevention of disease.” Insurance premiums are considered payments for coverage, not for a specific service or treatment, and fall outside this definition. This prohibition applies to most health-related insurance, including your share of employer-sponsored health, dental, and vision plan premiums.

Employees must budget for their insurance premium payments separately from their FSA contributions. The premiums themselves are paid with either pre-tax or post-tax dollars directly from your paycheck, depending on your employer’s specific cafeteria plan setup under the tax code. Misusing FSA funds for non-qualified expenses like premiums can result in the reimbursement being treated as taxable income.

Common FSA Eligible Expenses

While premiums are not eligible, a wide array of other healthcare costs can be paid for using your FSA. These accounts cover out-of-pocket expenses your health insurance may not fully pay for, including deductibles, copayments, and coinsurance. The scope of eligible expenses includes:

• Prescription medications and many over-the-counter medicines
• Dental treatments, such as fillings, cleanings, and orthodontia
• Vision care, including eye exams, prescription eyeglasses, and contact lenses
• Medical supplies and equipment like crutches, bandages, and blood sugar test kits

The IRS provides a comprehensive list of permitted expenses in Publication 502. It is important to check your specific plan documents, as an employer can sometimes limit the list of eligible expenses.

Distinguishing FSAs from HSAs for Premiums

A common point of confusion arises from the different rules governing FSAs and Health Savings Accounts (HSAs). An HSA is a tax-advantaged savings account paired with a high-deductible health plan. HSAs offer greater flexibility regarding the payment of insurance premiums.

Unlike an FSA, HSA funds can be used to pay for several types of insurance premiums. This includes premiums for COBRA continuation coverage, health care coverage while receiving unemployment benefits, and Medicare premiums for those over age 65. HSA funds can also be used for qualified long-term care insurance premiums, though these are subject to annual, age-based limits set by the IRS.

The distinction is a matter of federal regulation. The stricter rules for FSAs are tied to their nature as “use-it-or-lose-it” accounts offered through an employer’s cafeteria plan. In contrast, HSAs are owned by the individual, are portable between jobs, and the funds roll over year after year, functioning more like a retirement account for healthcare.