HSAs: Is it a Spending or Savings Account?

HSAs: Is it a Spending or Savings Account?

Ask Bob: Can I Use HSA funds to Pay Medicare/Medicare Advantage Plan Premiums?

Recently unemployed, a reader asks about using HSA funds to pay his Medicare premiums.
Author:
Publish date:

Question

I am over 65, not collecting Social Security (yet), and on Medicare with a third party medical advantage plan.

I departed my employment within the last year with substantial savings in a HSA (health savings account). I am currently collecting unemployment.

I was aware HSA funds could not be used for medical premiums, but it appears I can use HSA funds to pay both basic Medicare and (Medicare) Advantage plan premiums while I am collecting unemployment...have I correctly interpreted this?

Is there a good single source of rules for use of HSA funds? I have a few documents, but none of them noted the exception concerning medical premiums IF on unemployment.

Answer

“You are correct,” says Lynn Dunston, CFP® and a partner with Moneta. The IRS specifically states that you can use HSA funds to pay basic Medicare and Medicare Advantage plan premiums.

Dunston explains that you can’t treat insurance premiums as qualified medical expenses unless the premiums are for any of the following:

1. Long-term care insurance.

2. Health care continuation coverage (such as coverage under COBRA).

3. Health care coverage while receiving unemployment compensation under federal or state law.

4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

The premiums for long-term care insurance (item (1)) that you can treat as qualified medical expenses are subject to limits based on age and are adjusted annually. See Limit on long-term care premiums you can deduct in the Instructions for Schedule A (Form 1040).

Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. For item (4), if you, the account beneficiary, aren’t 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) aren’t generally qualified medical expenses.

A good resource for the use of HSA funds, says Dunston, is the Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.

Assistant editor Kim McSheridan assisted with this report.

Got questions? Get answers!

Email Robert.Powell@maven.io

More from Retirement Daily

Should You Buy A Boat?

Tax-Smart Bequests for Heirs and Charities

The Three Pillars to Begin Building Wealth

How to Save for Your Child's or Grandchild's Future

Beginner's Guide to Travel Hacking

Why You Should Consider a Professional Trustee

Don’t Let the Perfect Be the Enemy of the Comfortable

Why Stocks Aren’t Always Best Held in a Roth IRA

Calculating Required Minimum Distributions

Reduce Capital Gains Tax on the Sale of Your Business

What You Need to Know About Parent PLUS Loans

Confidence in Retirement Security Resilient in Face of Pandemic: EBRI

5 Opportunities to Pay Less Tax and Avoid Tax Reporting Problems this Tax Season

How Jill Can Pay for Long-Term Care

Why Wealthy Donors Don't Give More 

Question

I am over 65, not collecting Social Security (yet), and on Medicare with a third party medical advantage plan.

I departed my employment within the last year with substantial savings in a HSA (health savings account). I am currently collecting unemployment.

Member Exclusive

Get Access to Our Exclusive Content