Can I use my HSA to pay for Health Insurance Premiums?

Today’s video discusses the ability to pay for health insurance premiums from one’s Health Savings Account (HSA).

Health Savings Accounts are custodial accounts that insureds and/or their employers can fund with pre-tax dollars. Those pre-tax dollars are generally used to pay for medical expenses that are applied toward an insurance plan’s deductible, copayments or coinsurance.

However, some may find they have adequate funds in their HSA and wonder if they can pay their health insurance premiums with these funds. The answer is, it depends.

HSA funds can be used to pay the following premiums:

• COBRA premiums
• Premiums for health insurance if the individual is receiving unemployment compensation
• Premiums for Medicare Parts A (those who did not earn premium free Part A through work or a spouse’s work record), B, D, or an Advantage Plan
• Premiums for Long Term Care, with limits based on age:

HSA’s cannot be used to pay for any other type of insurance premium. This includes Medicare supplement premiums, dental or vision insurance premiums, or individual plans purchased on or off a health exchange.

As a reminder, the funds in your HSA are yours to use, regardless of whether you are still covered by the compatible High Deductible Health Plan that made you eligible to contribute to the account. However, in order for the funds to be spent tax-free, they need to be spent on the premiums listed above, or on qualified medical expenses as defined in IRS Publication 502.

If HSA funds are used for unqualified expenses when the owner is under age 65, the disbursement will be subject to income tax plus an additional 20% penalty. If HSA funds are used for unqualified expenses when the owner is over age 65, no penalty is imposed, but the HSA disbursement will be subject to income tax. 

HSA’s are a valuable tool for tax savings on health care. Just be sure you understand whether you’re using these funds on qualified expenses. Thanks for reading.