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Can FSAs or HSAs pay for health insurance?

Dear Tax Talk,
Can you use an FSA to pay for health insurance premiums if you have no benefits through your work? If you are allowed, can you have an HSA as well and just use your FSA to pay premiums?
-- Ken

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Dear Ken,
A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses on a pretax basis through a plan sponsored by their employers. The plan is usually funded by voluntarily deferring part of your salary into the FSA plan.

A health savings account (HSA) is a tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be eligible to qualify for an HSA. It is similar to an IRA, but rather than providing for retirement, it can be used to cover medical expenditures.

Generally, neither plan can pay health insurance premiums. However, an HSA in certain limited circumstances can pay premiums. In an HSA you can treat premiums for long-term care coverage, health-care coverage while you receive unemployment benefits or health-care continuation coverage required under federal law as qualified medical expenses.

If you are age 65 or older, you can treat insurance premiums (other than premiums for a Medicare supplemental policy, such as Medigap) as qualified medical expenses for HSAs. IRS Publication 969 has additional information on HSAs and FSAs and how to qualify under either.

Bankrate.com's corrections policy -- Posted: Dec. 30, 2005
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