What you can and cannot pay for with HSA money

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

The reason for this restriction comes from the IRS. An HSA is designed to pay for medical expenses that your health insurance does not cover — the deductible, copays, prescriptions, and procedures. Paying your regular health insurance premium with HSA money would mean using the account to fund the insurance itself rather than the care it covers. That crosses a line the IRS has drawn.

If you use HSA money for a premium you are not allowed to pay with it, the withdrawal counts as a non-may have access to expense. You will owe income tax on that amount, plus a 20 percent penalty. So a $500 premium paid with HSA funds could cost you $100 in penalties alone, on top of income tax.

Key Takeaways

  • You can pay premiums for COBRA, long-term care insurance, and health insurance during unemployment with HSA funds, but not regular health insurance premiums.
  • Using HSA money for an ineligible premium triggers income tax plus a 20 percent penalty on the amount withdrawn.
  • Medicare premiums (Part A, Part B, and Part D) are may be able to access HSA expenses, but only after you turn 65 and enroll.
  • COBRA premiums are may be able to access even though COBRA is temporary coverage, because the IRS treats continuation coverage differently from regular insurance.

COBRA premiums and temporary coverage

COBRA is the one situation where you can use HSA money to pay a health insurance premium while you are actively covered. COBRA is continuation coverage — it lets you keep your employer's health plan for up to 18 months after you leave the job, though you pay the full premium yourself instead of splitting it with your employer.

Because COBRA is temporary and a direct continuation of coverage you already had, the IRS allows HSA withdrawals to pay the premium. This matters because COBRA premiums are often high — typically 102 percent of what the employer and employee paid together. Using HSA funds can ease that burden during a job transition.

The same rule applies to other continuation coverage under state laws. If your state has a program similar to COBRA, you can use HSA money to pay those premiums as well. Check your state's insurance commissioner's office if you are unsure whether your continuation coverage qualifies.

Health insurance during unemployment

If you lose your job and are unemployed, you can use HSA funds to pay premiums for any health insurance you buy on your own — through the ACA marketplace, a short-term plan, or directly from an insurer. This is one of the few times you can use HSA money for a regular health insurance premium.

The catch is that you must be unemployed at the time you pay the premium. Once you are employed again, even part-time, you cannot use HSA money for health insurance premiums. The IRS does not define "unemployed" precisely, but the intent is clear: this is for people between jobs, not for people who choose to buy individual insurance while working.

You will need to track this carefully if your employment status changes during the year. If you paid a premium while unemployed and then found a job, that premium payment was legitimate. If you pay a premium after you are employed again, it is not.

Medicare premiums after age 65

Once you turn 65 and enroll in Medicare, you can use HSA funds to pay Medicare Part A premiums, Part B premiums, and Part D prescription drug premiums. You can also use HSA money to pay for Medigap supplemental insurance premiums. This is one of the most valuable uses of an HSA in retirement.

The rule applies only after you are actually enrolled in Medicare. If you are 65 but have not yet signed up, you cannot use HSA money for the premium. Once you enroll, all past and future premiums become may be able to access expenses, so you can reimburse yourself for premiums you already paid out of pocket.

This makes the HSA a powerful retirement tool. If you have a large HSA balance and delay Medicare enrollment until age 70 (which increases your benefit), you can use HSA funds to cover the premiums for the years you are not yet on Medicare but are no longer working.

Long-term care insurance premiums

Long-term care insurance — coverage for nursing home care, assisted living, or in-home care — is one of the few insurance premiums you can always pay with HSA funds, regardless of your employment status or age. This is because long-term care is considered a medical expense by the IRS, not just insurance.

There is a limit: you can only pay premiums up to a certain amount per year, which the IRS adjusts annually. For 2024, the limit is $430 per month for someone age 40 or younger, and higher for older people. If your long-term care premium exceeds the limit, you can pay the excess out of pocket, but only the amount within the limit comes from your HSA.

Long-term care insurance is expensive and often underused, but it is one of the few ways to protect assets from the cost of extended care. Using HSA funds to pay the premium makes it more affordable and lets your HSA do what it was designed to do: cover care expenses.

What happens if you pay an ineligible premium

If you withdraw HSA funds to pay a premium that is not on the may be able to access list, the IRS treats it as a non-may have access to withdrawal. You owe income tax on the amount at your ordinary tax rate, plus a 20 percent penalty. You will report this on your tax return when you file.

The penalty is separate from the income tax, not a replacement for it. If you withdraw $500 for an ineligible premium and your tax bracket is 22 percent, you owe $110 in income tax plus $100 in penalties — $210 total. That is why it is important to know the rules before you withdraw.

If you made the withdrawal by mistake, you cannot undo it. Some HSA providers let you redeposit funds within a short window, but that is not may provide. The safest approach is to verify that a premium is may be able to access before you pay it with HSA money.

How to track may be able to access and ineligible premiums

Keep a record of every premium you pay with HSA funds. Write down the date, the type of insurance, the premium amount, and whether it is may be able to access. If you pay multiple premiums — COBRA while unemployed, then individual insurance, then Medicare later — the rules change at each step, and your HSA provider may not catch the difference.

Your HSA provider sends you a Form 1099-SA each year showing total withdrawals, but it does not categorize them as may have access to or non-may have access to. That is your responsibility. If you cannot document that a withdrawal was for an may be able to access expense, the IRS can assess penalties and back taxes if you are audited.

Keep receipts or statements from your insurance company showing the premium amount and the dates it covers. If the premium covers multiple months, note which months fall under which employment status or age. This detail matters if your situation changes mid-year.

Frequently Asked Questions

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

Only if your spouse is unemployed and you are paying a premium for individual coverage they buy themselves. You cannot use your HSA to pay your spouse's share of an employer plan or a family plan premium. If your spouse has their own HSA, they can use it for their own may be able to access premiums.

What if my employer offers a health insurance premium payment plan through my HSA?

Some employers set up a payroll deduction that lets you pay premiums with pre-tax dollars directly from your paycheck. That is different from using HSA funds. Payroll deduction for premiums is allowed and does not count as an HSA withdrawal. Do not confuse the two.

Can I use HSA money to pay for a short-term health insurance plan?

Yes, if you are unemployed when you buy it. Short-term plans are may be able to access for HSA payment during unemployment, just like any other health insurance. Once you are employed again, you cannot use HSA funds for the premium, even if the plan continues.

Do I have to report HSA withdrawals for may be able to access premiums on my tax return?

No. may have access to withdrawals — including may be able to access premiums — do not appear on your tax return. Your HSA provider reports the withdrawal on Form 1099-SA, but you do not report it as income. Only non-may have access to withdrawals need to be reported and taxed.

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

No. Dental and vision insurance premiums are not may be able to access HSA expenses, even if you have a high-deductible health plan. You can use HSA funds to pay for dental and vision care once you have met the deductible, but not for the insurance premium itself.