Health FSAs use §213(d) as a foundation but are governed by Section 125 cafeteria plan rules, which add layers of restrictions not found in HSAs or HRAs.
Refer to IRC §213(d) Medical Expenses page for more detailed information on allowable expenses.
FSAs Cannot Reimburse Premiums
Even if a premium is a 213(d) expense, FSAs are prohibited from reimbursing:
- Group health premiums
- COBRA
- Individual market premiums
- Medicare or LTC premiums
Premium reimbursement is always disallowed.
Uniform Coverage Rule
FSAs must make the full annual election available on day one, even though full deductions have not been made by the employee yet.
This impacts:
- Timing of reimbursements
- Handling of mid-year terminations
- Risk for employers (underspending vs overspending)
Limited Purpose and Post-Deductible FSAs
FSAs must be limited-purpose when paired with HSA-compatible HDHPs.
Allowed categories:
- Dental
- Vision
- Preventive care (sometimes, if post-deductible)
Use-it-or-Lose-it Rules
FSAs operate under one of three models:
- Grace period – allows participants up to 2.5 months after the end of the plan year to incur new eligible expenses using prior-year FSA funds.
- Carryover – allows a set dollar amount of unused funds (up to the annual IRS carryover limit) to roll over from one plan year into the next.
- Traditional forfeiture
These rules affect when 213(d) expenses can be reimbursed.
Substantiation Required
Like HRAs, claims must be substantiated as follows:
- Must show date of service
- Type of service
- Amount incurred
- Proof that the service occurred
This includes over-the-counter (OTC) items unless the plan adopts auto-substantiation methods, which is relatively common.
Dependent Eligibility
FSAs reimburse 213(d) expenses only for:
- Participant
- Spouse
- IRS tax dependents