Yes, but only certain premiums may have access to

You can use your HSA to pay some health insurance premiums, but not all of them. The IRS allows HSA withdrawals for premiums on COBRA continuation coverage, long-term care insurance, and health insurance you buy while unemployed. You cannot use HSA funds to pay premiums for your regular employer health plan, a spouse's employer plan, or Medicare Part B, Part D, or Medigap coverage — with one exception: if you are retired and over 65, you can use HSA funds to pay Medicare Part B and Part D premiums, but not Medigap.

The reason for these limits is that the IRS treats HSA withdrawals for premiums differently than other medical expenses. Most medical costs come out of your HSA tax-free with no questions asked. Premium payments are stricter because the government wants to prevent people from using HSA funds to dodge taxes on insurance costs that should be paid with after-tax dollars.

If you withdraw HSA money for a premium that does not may have access to, you owe income tax on that amount plus a 20 percent penalty. The withdrawal also counts as taxable income for that year. This makes it expensive to guess wrong, so confirm the premium type before you pull the money out.

Key Takeaways

  • COBRA premiums, long-term care insurance premiums, and health insurance premiums paid while you are unemployed can be paid from your HSA without tax or penalty.
  • Premiums for your current employer health plan, your spouse's employer plan, and most Medicare coverage cannot be paid from an HSA and will trigger a 20 percent penalty plus income tax if you try.
  • If you are retired and over 65, you can use HSA funds for Medicare Part B and Part D premiums, but this rule does not apply to people under 65.
  • You must keep receipts or documentation showing which premium you paid, because the IRS may ask for proof that the withdrawal was for a may have access to premium.

COBRA premiums and the HSA exception

COBRA is the federal law that lets you keep your employer health coverage for up to 18 months after you leave a job. You pay the full premium yourself — usually 102 percent of what the employer and employee portions cost combined. Because COBRA is temporary coverage you buy yourself rather than employer-provided coverage, the IRS treats COBRA premiums as a may have access to HSA expense.

This is one of the most common reasons people use HSA funds for premiums. If you are between jobs or left your employer voluntarily, COBRA lets you stay on the same plan while you find new coverage or a new job. Using your HSA to cover COBRA premiums stretches your savings further because the withdrawal is tax-free and penalty-free.

Keep the COBRA election letter and premium invoices. If you are audited, the IRS will want to see that you actually elected COBRA and that the amount you withdrew matches what you paid. The documentation also protects you if your HSA provider questions the withdrawal.

Unemployment and health insurance you buy yourself

If you are unemployed and buy health insurance on your own — through the ACA marketplace, a private insurer, or any other source — you can pay those premiums from your HSA tax-free. This rule applies only while you are unemployed. The moment you start a new job and become may be able to access for employer coverage, premiums for your individual plan no longer may have access to.

The definition of unemployed matters. You must be receiving unemployment benefits or have been laid off and are actively looking for work. If you quit your job or were fired for cause, you may not meet the IRS definition of unemployed, even if you are not working. Check with your state's unemployment office or a tax professional if you are unsure whether you count.

Save your insurance invoices and proof of unemployment (such as unemployment benefit statements or a separation letter from your employer). If you later become employed and continue to withdraw HSA funds for the same premium, those later withdrawals will not may have access to and will be taxed and penalized.

Long-term care insurance premiums

Long-term care insurance covers nursing home care, assisted living, or in-home care for chronic illness or disability. Premiums for this type of insurance are a may have access to HSA expense at any age and in any employment situation. You do not have to be unemployed or on COBRA.

The IRS limits how much you can withdraw for long-term care premiums based on your age. In 2024, the limit ranges from $450 per year if you are under 41 to $3,000 per year if you are over 70. These limits change annually. Check your HSA provider's website or the IRS Publication 969 for the current year's limits.

Long-term care insurance is often expensive, and the annual HSA limit may cover only part of your premium. You will need to pay the remainder with after-tax dollars. Keep the insurance policy and premium statements to document what you paid and how much came from your HSA.

Medicare premiums after age 65

Once you turn 65 and enroll in Medicare, the rules change. You can use HSA funds to pay premiums for Medicare Part B (medical insurance) and Medicare Part D (prescription drug coverage) without tax or penalty. You cannot use HSA funds for Medigap premiums, which are supplemental policies sold by private insurers.

This exception applies only to people who are 65 or older. If you are under 65 and on Medicare (for example, due to disability), you cannot use your HSA for Medicare premiums. The IRS treats Medicare coverage differently once you are of retirement age, which is why the rule exists.

If you are still working past 65 and enrolled in your employer's health plan instead of Medicare, you cannot use your HSA for Medicare premiums. You can only use HSA funds for Medicare premiums if you have actually enrolled in Medicare Part B or Part D.

What happens if you use HSA funds for a non-may have access to premium

If you withdraw money from your HSA to pay a premium that does not may have access to — such as your employer plan premium or a Medigap premium — the IRS treats it as a non-medical withdrawal. You owe income tax on the full amount at your ordinary tax rate, plus a 20 percent penalty on top of that.

Example: You withdraw $500 from your HSA to pay a Medigap premium. If your tax bracket is 22 percent, you owe $110 in income tax plus $100 in penalty, for a total of $210 in taxes and penalties on a $500 withdrawal. That is a 42 percent cost just to access your own money.

The withdrawal also counts as income on your tax return, which can affect other tax credits or deductions you claim. If you made a mistake, some HSA providers will allow you to reverse the withdrawal within a short window, but this varies by provider. Contact your HSA administrator immediately if you realize you withdrew funds for a non-may have access to premium.

How to document HSA premium payments for the IRS

Keep records of every HSA withdrawal you make for a premium. Save the insurance invoice or premium statement showing the amount, the date, and the type of coverage. If you paid COBRA, keep the COBRA election letter. If you were unemployed, keep unemployment benefit statements or a separation letter from your employer.

Your HSA provider will send you a Form 1099-SA each January showing all withdrawals from the previous year. This form does not distinguish between medical expenses and premiums, so the burden is on you to track which withdrawals were for which purpose. If you are audited, you will need to show the IRS that each premium withdrawal was for a may have access to expense.

Organize your records by year and keep them for at least three years after you file your tax return. The IRS can audit back three years as a standard practice, and longer if they suspect fraud. Digital copies are fine, but make sure they are legible and include the date and amount.

Frequently Asked Questions

Can I use my HSA to pay my employer health plan premium?

No. Employer plan premiums are not a may have access to HSA expense, even if you pay part of the premium through payroll deduction. The only exception is if you are retired and over 65 and paying Medicare premiums. If you try to use HSA funds for your employer plan premium, you will owe income tax plus a 20 percent penalty.

What if I have both an HSA and a Flexible Spending Account?

You cannot have both an HSA and an FSA in the same year. If you are enrolled in an FSA, you are not may be able to access for an HSA. Some employers offer a limited-purpose FSA that covers only dental and vision, which allows you to also have an HSA. Check with your employer's benefits office about what combination you are allowed to use.

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

Only if your spouse is unemployed and buying individual coverage, or if your spouse is on COBRA. You cannot use your HSA to pay your spouse's employer plan premium. If you are both covered under the same HSA, the rules are the same as if you were paying your own premium.

Do I have to report HSA premium payments on my tax return?

You do not report may have access to premium payments separately. The withdrawal appears on your Form 1099-SA, but you do not owe tax on it if it was for a may have access to premium. Keep your documentation in case the IRS asks. Non-may have access to premiums must be reported as taxable income and are subject to the 20 percent penalty.

Can I use my HSA to pay for health insurance while I am on disability?

If you are receiving Social Security Disability Insurance (SSDI) or another form of disability benefits, you are considered unemployed for HSA purposes. You can use HSA funds to pay premiums for health insurance you buy yourself. Once you return to work and become may be able to access for employer coverage, the rule no longer applies to that premium.