Why health FSAs cannot reimburse insurance premiums

Why health FSAs cannot reimburse insurance premiums

A health FSA cannot treat employees’ premium payments for other health coverage as reimbursable expenses. Thus, for example, a health FSA cannot reimburse premiums for COBRA coverage, accidental death and dismemberment insurance, long-term or short-term disability insurance, or coverage under a plan maintained by an employer of the employee or the employee’s spouse or dependent. This rule would also prohibit the reimbursement of Medicare premiums.

Some employers are surprised by the rule that health FSAs cannot reimburse insurance premiums. A health FSA can only reimburse expenses for medical care and premiums for health coverage fall within that definition. However, IRS regulations state that insurance premiums cannot be reimbursed under a health FSA, and the IRS has repeatedly reaffirmed this rule.

Likewise, monthly retainer or similar access fees (e.g., a monthly fee that is payable whether or not the patient visits the office, perhaps accompanied by a reduction or elimination of the fees for actual office visits) generally are not reimbursable. In our view, they are like insurance because they are payable whether or not medical care is provided. Thus, they fall under the “no reimbursement of insurance premiums” rule that applies to health FSAs and should not be reimbursed. In 2020, the IRS issued proposed regulations regarding the treatment of amounts paid for direct primary care arrangements, health care sharing ministries, and certain other medical care arrangements. The preamble to the proposed regulations clarifies that payments for such arrangements typically would be viewed as payments for insurance. As such, health FSAs would be prohibited from reimbursing these fees based on the “no reimbursement of insurance premiums” rule. Payments for health care sharing ministries would also be treated as payments for insurance under the proposed regulations.

In a variation on this type of arrangement, patients receive preferential “extras” from their doctors in exchange for a fee (e.g., priority when scheduling appointments, 24-hour telephone access to the doctor, less time in the waiting area before appointments, a special waiting room, etc.). Fees for such programs generally should not be reimbursed either, because the payments would not be for medical care. The same is true of a monthly fee that a patient must pay in addition to any copays, deductibles, or other charges for office visits.

Note that there could be variations on these access fee arrangements under which some services might be reimbursable, depending on how the program is structured (for example, a fee might include payments that can be separately allocated to services that are for medical care). Additionally, health FSA administrators should not put too much stock in the particular name given to the fee (retainer fee, concierge fee, direct primary care, etc.).

These terms may mean different things for different providers. Consequently, it is important to determine exactly what services are involved before deciding whether to reimburse part of a fee—it may be necessary to ask the participant for additional substantiation. Where a fee relates solely to a specific rendered service (such as a copay) rather than being a retainer, part or all of it might qualify for reimbursement as an eligible medical care expense. For example, the preamble to the 2020 proposed regulations indicates that payments for a direct primary care arrangement that provide solely for an annual physical exam or an “anticipated course of specified treatments of an identified condition” would not be treated as insurance.

Source: Thomson Reuters

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