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Question for the Money Doctors

Question submitted on Sep 9, 2011.

Question

I am an employee whose employer does not offer health insurance but would like to compensate me with $300.00 pre-tax a month to buy health insurance. I was looking at an HRA to put this money into so that I would not have to pay income taxes on it, but I have been getting conflicting reports on whether you are allowed to pay health insurance premiums out of an HRA. Can you tell me whether health insurance premiums payments are allowed expenses from an HRA, and if not, is there another option for me that would allow me to avoid taxes on premium payments?

Answer

First, I have to presume you are referring to an HSA (Health Savings Account). 

Second, generally medical insurance premiums are not considered "deductible medical expenses" according to HSA guidelines.  There are exceptions, but I don't believe the exceptions fit your sitution.  The exceptions provide a deduction if you are over 65, you are currently on COBRA coverage, you are unemployed and collecting unemployment insurance, or if the distributions are used to pay long term care insurance.

My recommendation would be to convince your employer to adopt a medical reimbursement plan that could allow up to $300 per month in qualified medical expense reimbursement (including medical premium cost).  It would be totally deductible by your employer (providing there is no discrimination involved), and would be tax free reimbursement to you.   You would simply submit evidence of your allowable medical expense to your employer each month and receive your tax free reimbursement check of $300.


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