One key difference between health savings accounts (HSAs) and health flexible spending accounts (FSAs) is that in some circumstances HSAs can reimburse Medicare and other insurance premiums; health FSAs cannot. Recent guidance from the Internal Revenue Service (IRS) in Information Letter 2017-0004 confirmed this fact.
The guidance answered a question from a health FSA participant who wanted the plan to reimburse Medicare premiums. The plan denied the claims. This was consistent with the proposed cafeteria plan regulations, even though health insurance premiums, including those for Medicare, was eligible for the itemized tax deduction for medical expenses on an individual’s Form 1040 tax return.
This rule is also stated in IRS Publication 969. The information letter is helpful for two reasons:
- It provides the rationale for rejecting similar claims for health FSA reimbursement of insurance claims. Flexible benefit administrators might consider including the letter with the adverse benefit determination notice in this situation.
- It offers a good reminder that not all the deductible expenses listed in IRS Publication 502 are reimbursable by a health FSA.