HSA funds can pay for some insurance premiums, but not the ones you might expect

You can use HSA money to pay premiums for long-term care insurance, COBRA continuation coverage, and health insurance while you are unemployed. You cannot use it to pay premiums for your regular employer health plan, individual marketplace plans, or Medicare supplemental insurance — with one exception for people over 65. The IRS treats HSA withdrawals for premiums differently depending on which type of coverage you are paying for and your employment status at the time.

This matters because many people assume an HSA works like a general health fund. It does not. The IRS has specific rules about what counts as a may have access to medical expense, and premiums sit in a gray zone where some are allowed and others trigger a tax penalty on the withdrawal plus income tax.

Key Takeaways

  • COBRA premiums and health insurance premiums while unemployed are the two most common situations where HSA withdrawals for premiums are allowed without penalty.
  • You cannot use HSA funds to pay premiums for your current employer plan or individual marketplace coverage, even if you are the one paying the premium yourself.
  • Long-term care insurance premiums can be paid with HSA money, but only up to annual limits that vary by age and are set by the IRS each year.
  • Medicare beneficiaries over 65 can use HSA funds for Medicare Part B, Part D, and Medicare Advantage premiums, but not for Medigap supplemental plans.
  • Using HSA money for an ineligible premium triggers both income tax and a 20 percent penalty on the withdrawal amount.

When you can use HSA money for premiums without penalty

The clearest situation is COBRA continuation coverage. If you left a job and elected COBRA to keep your employer health plan, you can pay those premiums from your HSA. COBRA is temporary coverage that bridges the gap between jobs, and the IRS treats the premiums as may have access to medical expenses. You will need to track which withdrawals go to COBRA and keep your COBRA election letter and premium statements for your records.

The second common scenario is health insurance while unemployed. If you are not working and you buy individual coverage through the marketplace or directly from an insurer, HSA funds can cover those premiums. This applies only while you are actually unemployed — once you start a new job, even part-time, this exception closes. You will need to document your unemployment status if the IRS ever questions the withdrawal.

Long-term care insurance is also allowed, but with annual dollar caps. In 2024, the limits range from $450 per year for someone age 40 or younger to $3,200 per year for someone 60 or older. These limits are adjusted each year for inflation. If your long-term care premium exceeds the cap, you can only withdraw the capped amount from your HSA; the rest must come from other funds.

Premiums you cannot pay with HSA money

You cannot use HSA funds to pay premiums for your current employer health plan, whether you pay the full premium yourself or your employer covers part of it. This is true even if you are paying the employee portion out of pocket. The IRS considers this a non-may have access to expense, and the withdrawal will be subject to income tax plus a 20 percent penalty.

Individual marketplace plans — the coverage you buy through Healthcare.gov or your state exchange — are also off-limits while you are employed. This is a common point of confusion because people assume that since they are paying the premium themselves, they should be able to use their HSA. They cannot, unless they are unemployed at the time of purchase.

Medicare supplemental insurance (Medigap) premiums cannot be paid with HSA funds. If you are over 65 and enrolled in Medicare, you can use your HSA for Medicare Part B premiums, Part D prescription drug premiums, and Medicare Advantage plan premiums — but not for Medigap policies that fill in the gaps in Original Medicare coverage.

The tax penalty for using HSA money on ineligible premiums

If you withdraw HSA funds to pay a premium that does not may have access to, two things happen: you owe income tax on the withdrawal amount at your regular tax rate, and you owe an additional 20 percent penalty on top of that. So if you withdraw $1,000 to pay an ineligible premium and you are in the 22 percent tax bracket, you will owe $220 in income tax plus $200 in penalty — a total of $420 in taxes on a $1,000 withdrawal.

You report this on your tax return using Form 8889. The form asks you to list the total amount withdrawn and the amount used for may have access to medical expenses. The difference is treated as non-may have access to, and that is where the penalty applies. If you made the withdrawal in error, you can sometimes correct it by redepositing the funds within a certain timeframe, but this depends on your HSA provider's rules and the specific circumstances.

Medicare and HSA premiums after age 65

Once you turn 65 and enroll in Medicare, the rules shift. You can use HSA funds to pay premiums for Medicare Part B (medical insurance), Medicare Part D (prescription drug coverage), and Medicare Advantage plans (the private alternative to Original Medicare). These are considered may have access to medical expenses at any age.

What you cannot pay for is Medigap supplemental coverage. Medigap policies are private insurance sold by insurance companies to fill gaps in Medicare coverage, and the IRS does not classify Medigap premiums as may have access to HSA expenses. If you need supplemental coverage, you will have to pay those premiums from other funds.

You also cannot use HSA money to pay Medicare premiums that are deducted directly from your Social Security check. Once those premiums are deducted, they are no longer a separate expense you are paying — they are a reduction in your benefit. The IRS does not allow HSA withdrawals for premiums that have already been withheld from government benefits.

How to document HSA withdrawals for premiums

Keep copies of your premium statements, COBRA election letters, unemployment documentation, or Medicare enrollment confirmations. If you withdraw money for a premium, write down the date, amount, and which premium it paid for. Your HSA provider will send you a Form 1099-SA at the end of the year showing total withdrawals, but they do not track what each withdrawal was for — that is your responsibility.

If you are audited and the IRS questions a premium withdrawal, you will need to show that it falls into one of the allowed categories. A COBRA election letter is straightforward. Unemployment is harder to prove after the fact, so if you are in that situation, keep a copy of your final pay stub, unemployment benefits letter, or job separation notice. For long-term care insurance, keep the policy documents showing the premium amount and your age at the time of purchase, so you can prove you stayed within the annual limit.

Frequently Asked Questions

Can I use my HSA to pay my spouse's health insurance premium?

Only if your spouse is also covered by your HSA-may be able to access plan and you are both enrolled in the same coverage. If your spouse has separate coverage, you cannot use your HSA to pay their premium. If your spouse is unemployed and buys individual coverage, they would need their own HSA to pay that premium.

What happens if I withdraw HSA money for a premium and then get the money back?

If you withdraw funds for an ineligible premium and later redeposit them, contact your HSA provider when ready to ask about their recontribution policy. Some providers allow you to reverse the withdrawal before the tax year ends, which avoids the penalty. Others require you to report it on your tax return and request a correction. Do not assume it will fix itself — you need to act within the same tax year.

Can I use HSA money to pay for health insurance while I am between jobs?

Yes, if you are unemployed at the time you purchase the coverage. Once you start a new job, even if you have not yet enrolled in the new employer plan, you are no longer unemployed and this exception closes. If you buy coverage while unemployed and keep it after you start working, you can only use HSA funds for the premiums paid during the unemployment period.

Does my employer's contribution to my HSA count toward the premium payment limit?

No. The annual limit on how much you can contribute to an HSA is separate from how you use the money. Whether the funds came from your own contributions or your employer's contribution does not change which expenses are may have access to. The limit that matters for long-term care insurance is the annual cap on how much of that premium you can pay with HSA money, not how much is in your account.