What HSA money can and cannot pay for

You can use HSA funds to pay certain insurance premiums, but not all of them. The rule is straightforward: you can pay premiums for long-term care insurance, COBRA continuation coverage, and health insurance while you are unemployed. You cannot use HSA money for premiums on your regular health insurance, dental insurance, vision insurance, or life insurance, even if those premiums come out of your paycheck.

The IRS treats these three categories differently because they fall outside your normal employer coverage or represent coverage you need during a gap. If you use HSA funds for any other type of premium, the withdrawal counts as a non-may have access to expense — you pay income tax on that amount plus a 20 percent penalty.

The key word is premiums, not deductibles or copays. Once your insurance is active, you still cannot use your HSA to pay the monthly or annual premium itself. You can use it for the out-of-pocket costs that insurance does not cover.

Key Takeaways

  • HSA funds can pay premiums for long-term care insurance, COBRA coverage, and health insurance during unemployment, but not regular health insurance premiums.
  • Using HSA money for non-may have access to premiums triggers income tax plus a 20 percent penalty on the amount withdrawn.
  • You can use HSA funds for deductibles, copays, and coinsurance on any health plan, but not the monthly premiums themselves.
  • Keep receipts and documentation showing which type of premium you paid, because the IRS may ask for proof during an audit.

Long-term care insurance premiums

Long-term care insurance covers nursing home care, assisted living, or in-home care when you can no longer manage daily tasks on your own. The IRS allows HSA withdrawals to pay the premiums on these policies without penalty or tax, as long as the policy meets certain requirements.

Your long-term care policy must be a may have access to long-term care insurance contract, which means it has to be issued by a licensed insurance company and meet IRS standards. Most policies sold by major insurers meet this standard, but you should confirm with your insurance company or your HSA custodian before withdrawing funds. There is also an annual limit: you can only withdraw enough to cover premiums up to a certain dollar amount per year, which varies by your age. For 2024, that limit ranges from $530 for people under 41 to $3,280 for people over 70.

COBRA and health insurance during unemployment

COBRA is the federal law that lets you keep your employer health insurance for up to 18 months after you leave a job. You pay the full premium yourself — both the employer and employee portions — plus a 2 percent administrative fee. HSA funds can cover these COBRA premiums without tax or penalty.

You can also use HSA money to pay premiums on any health insurance you buy while you are unemployed and not covered by an employer plan. This includes plans you purchase through the health insurance marketplace, plans from professional associations, or short-term health insurance. Once you return to work and enroll in an employer plan, you can no longer use your HSA for that individual policy's premiums — only for out-of-pocket costs like deductibles.

Why regular health insurance premiums do not may have access to

Your employer-sponsored health insurance premium — whether it comes out of your paycheck before taxes or you pay it yourself — cannot be paid with HSA funds. The same applies to Medicare premiums, Medicaid premiums, or any other government health insurance. The IRS considers these part of your regular insurance coverage, not a special circumstance like COBRA or unemployment.

This rule surprises many people because HSAs can pay for almost every other health expense. The logic is that your regular health insurance is already a pre-tax benefit (if it comes through payroll) or a personal expense (if you buy it yourself), and the IRS does not want HSA funds to double-dip on that same cost. If you need to use your HSA for health expenses, you can pay the deductible, copay, coinsurance, and out-of-network costs — just not the premium itself.

How to withdraw HSA funds for may have access to premiums

The process depends on your HSA custodian and the type of premium you are paying. Most HSA providers let you request a reimbursement or direct payment once you submit proof of the premium. For long-term care insurance, you will need a copy of the policy or a premium statement showing the amount paid. For COBRA, keep your election letter and premium invoices. For unemployment coverage, save your policy documents and proof that you were not covered by an employer plan at the time.

Some HSA custodians offer a debit card that you can use to pay premiums directly, though this is less common for insurance premiums than for pharmacy or medical office visits. If your custodian does not offer that option, you can pay the premium out of pocket and then request a reimbursement from your HSA. Submit your receipt and a brief explanation of which type of premium it was — this documentation protects you if the IRS ever questions the withdrawal.

Keep in mind that your HSA custodian is not responsible for determining whether a premium qualifies. That responsibility falls on you. If you withdraw funds for a non-may have access to premium, the custodian will report it to the IRS, and you will owe the tax and penalty when you file your return.

What happens if you use HSA funds for the wrong premium

If you withdraw HSA money to pay a premium that does not may have access to — such as your regular health insurance or life insurance — that withdrawal is treated as a non-may have access to medical expense. You must report it on your tax return, pay income tax on the amount at your ordinary tax rate, and pay an additional 20 percent penalty.

For example, if you withdraw $500 from your HSA to pay a health insurance premium and you are in the 22 percent tax bracket, you would owe $110 in income tax (22 percent of $500) plus $100 in penalty (20 percent of $500), for a total of $210 in taxes and penalties on a $500 withdrawal. The amount also counts as income on your return, which could affect other tax benefits you claim.

The best way to avoid this is to confirm with your HSA custodian or a tax professional before you withdraw funds for any insurance premium. A five-minute conversation can save you hundreds in penalties.

Frequently Asked Questions

Can I use my HSA to pay my Medicare premiums?

No. Medicare premiums, including Part B, Part D, and Medigap policies, are not may have access to HSA expenses. However, once you are enrolled in Medicare, you can use HSA funds to pay deductibles, copays, and other out-of-pocket costs that Medicare does not cover.

What if my employer pays part of my health insurance premium?

You still cannot use HSA funds to pay either the employer portion or your employee portion of a regular health insurance premium. The rule applies regardless of who is paying. The only exception is if you are on COBRA or unemployed and buying your own coverage.

Can I use HSA money to pay life insurance premiums?

No. Life insurance is not a health expense under IRS rules, so HSA funds cannot be used for any life insurance premium. This includes term life, whole life, or any other type of life insurance policy.

Do I need to report HSA withdrawals for may have access to premiums to the IRS?

Your HSA custodian reports all withdrawals on Form 5498-SA, which goes to the IRS. You do not need to file a separate form for may have access to premiums, but you should keep your receipts and documentation in case the IRS asks for proof that the withdrawal was for a may have access to expense.

Can I use my HSA for dental or vision insurance premiums?

No. Dental and vision insurance premiums are not may have access to HSA expenses, even though dental and vision care themselves are may have access to expenses. You can use HSA funds to pay for the dental work or eye exam once you have insurance, but not the monthly premium.