You aren't allowed to use a flexible spending account, or FSA, to pay health insurance premiums. However, you can use it to pay medical costs that your insurance doesn't cover, according to the HealthCare.gov website. In addition, your FSA deposits are tax-free, so that savings can make it easier to afford your insurance premiums.
Enrollment and Funding
An FSA is available only with employer-based insurance, and you must select it every year during open enrollment in November and December. You don't stay automatically enrolled. As of 2015, you can set aside a maximum of $2,550 each year, according to HealthCare.gov. How much you save is up to you, but whatever you choose is set aside through pre-tax payroll deductions,
According to the U.S. Office of Personnel Management, a taxpayer with an annual income of $50,000 saves approximately $600 by putting $2,000 in a FSA. Your actual savings depends on your tax bracket and how much you choose to put in your account. Because FSA deposits are exempt from state and federal income taxes and Social Security taxes, the savings typically range from 25 to 40 percent of your deposits, according to The Chicago Tribune. People in higher tax brackets save the most.
Using Your FSA
You can use your FSA account to cover medical, hearing, dental and visions expenses for you and your family. FSA funds pay for out-of-pocket expenses your insurance doesn't cover, such as co-payments and deductibles. You also can use your account for prescription drugs and over-the-counter drugs if a doctor writes a prescription, and you can use it for insulin without a prescription. Your account also covers medical supplies and medical equipment. The Internal Revenue Service provides a comprehensive list of covered expenses on its website.
Generally, you must use your FSA money during the same tax year, or else you lose it. However, your employer may enable one of two options for limited carryover. Either you may use $500 at any time the following year, or you may have up to 2 1/2 additional months to use the funds. Carryover only is available if your employer enables one of these options.
Calculating the Advantage
The average employee contribution for single coverage on employer health insurance was $1,170 as of 2013, according to the Henry J. Kaiser Family Foundation. In this case, a typical $600 in tax savings from funding an FSA covers approximately half of the annual premiums. Your own advantage depends on your tax savings and the cost of your premiums.
The average family plan employee premium was $4,421 as of 2013, so you'll have to find most of the premium money elsewhere in the budget if you have a family plan.