Q&A: Are Group Health Sharing Plan Costs Eligible for FSA Reimbursement?

Current guidance suggests no—unless it is part of a fully developed and compliant self-insured health plan.

Our church has several employees who opt out of group health insurance and instead elect to participate in a group “health sharing plan.” It is my understanding that any out-of-pocket health expenses incurred by an employee are eligible for a Flexible Spending Account (FSA), provided they are included on the Internal Revenue Service’s (IRS) list of eligible reimbursed expenses.

Could you please clarify if the monthly “subscription” or “membership” cost for a health sharing plan paid by these employees could be covered as an FSA reimbursement?

And, more generally speaking, are there any situations in which a church pays the membership fee for a health sharing plan as a part of any tax-free fringe benefit plan?

Membership fees or subscription costs to a faith-based health sharing plan have not been considered as a medical expense under the current interpretation of “medical insurance.” In general, since a fee or subscription is not included in the definition of a medical expense, it is not an eligible expense for “health plans” provided to employees. As such, the payments for these plans are not eligible medical expenses available for reimbursement from an FSA.

We generally tell clients that if paid by the employer, the health sharing plan membership fee or subscription cost is taxable to the employee.

A potential exception to the above advice is when churches create a “self-insured” health plan. Sometimes the church will use the health sharing arrangement to fund the benefits it owes under its self-insured health plan.

To comply with the Affordable Care Act (ACA), the church must have an unlimited liability for health benefits under the self-insured health plan. Attorneys for health sharing plans sometimes recommend this approach as a way to incorporate health sharing plans into the church’s group health plan. According to some health sharing plans, a church’s payment of the membership fee is not taxable to the employee because the church’s self-insured plan is the sole beneficiary under the health sharing plan.

For this strategy to work, however, the church must draft and adopt a comprehensive health benefit plan meeting all the requirements for a self-insured health plan under the ACA. The church should retain an experienced benefits attorney to consult on and draft such a plan.

In June of 2020, the IRS issued a proposed rule changing the above advice. The new rule proposed regulations defining “insurance” for purposes of medical expenses to include heath sharing plan arrangements. While comments were gathered, and a public hearing was scheduled by the IRS, the regulations were never published. Therefore, the long-standing advice described above remains current until the IRS publishes the proposed regulations. With the current moratorium on new regulations, it is doubtful this will occur in the near future.

In summary, we tell churches to tax the membership fees or subscription costs of health sharing plans to employees unless the church has a qualifying self-insured health plan covering the costs.

Elaine L. Sommerville is licensed as a certified public accountant by the State of Texas. She has worked in public accounting since 1985.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay
caret-downclosefacebook-squarehamburgerinstagram-squarelinkedin-squarepauseplaytwitter-square