As the cost of healthcare continues to rise, people are seeking innovative ways to cover medical expenses. One increasingly popular solution is the Health Savings Account (HSA). HSAs offer a triple tax advantage – contributions are tax-deductible, earnings grow tax-free, and withdrawals for eligible expenses are also tax-free. But did you know that you can use your HSA funds to pay for insurance premiums too? Here’s what you need to know.
What is an HSA?
A Health Savings Account (HSA) is a type of savings account that allows you to set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in an HSA to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall healthcare costs. HSA funds generally may not be used to pay premiums, but there are exceptions.
One of the biggest advantages of using HSA funds for insurance premiums is that it expands the list of eligible expenses beyond just copays or deductibles. However, not every type of premium is considered an eligible expense. The following types of premiums qualify for HSA reimbursement:
- COBRA health insurance continuation coverage
- Long-term care insurance premiums
- Health plan premiums while receiving unemployment benefits
- Medicare Part A or B, Medicare Advantage Plans (Part C), or Prescription Drug Coverage (Part D)
- Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
- Certain qualified long-term care policies
It’s important to note that only individual health plans qualify as an eligible expense under HSAs; group health plans do not.
Rules and Limitations
While using your HSA funds towards insurance premiums can be convenient, there are rules and limitations worth knowing before diving in.
Firstly, the contribution limits apply regardless if the money goes toward medical costs or insurances payments. For 2022, it’s $3,650 for individual coverage and $7,300 for family coverage with an additional catch-up amount allowed if over 55 years old.
Secondly, HSA account holders who use their funds towards non-healthcare purposes must face IRS penalties. Therefore, total withdrawal from an account holder’s balance will lead to double taxation: once when withdrawing for non-healthcare purposes, and once again when facing a penalty tax that is 20% in addition.
How to Use Your HSA Funds for Premiums
Using your HSA funds towards eligible premiums depends on the process of each insurer. Some insurance companies operate through automatic payments systems while others do not, so it’s important to check with your provider first.
The next step would be submitting a reimbursement claim in which you will attach proof of payment or invoice for the premium paid by using your HSA debit card rather than a personal credit/debit card.
Using your HSA funds for insurance premiums is a viable option if you have extra funds saved – but only if those premiums are considered as an eligible expense outlined by the IRS guidelines. Familiarize yourself with rules and eligibility limitations before using any savings account, including HSAs. Doing so can provide another layer of financial flexibility in light of high medical costs.
Can I use my HSA funds to pay for any insurance premium?
No, you can only use your Health Savings Account (HSA) funds to pay for health insurance premiums that meet specific criteria. You can use HSA funds to pay for premiums on a high-deductible health plan (HDHP) that meets certain standards set by the IRS. These include deductibles and out-of-pocket expenses limits.
What types of insurance premiums qualify for HSA funding?
HSAs may be used to pay monthly or annual premiums on several types of qualifying plans, such as a COBRA coverage continuation policy, long-term care policy (up to certain limits), Medicare Part A or B coverage, or HDHPs offered through an employer-sponsored plan.
Can I make contributions from my paycheck into both an FSA and an HSA account at the same time?
No, you cannot contribute to both accounts at the same time. If you have access to an employer’s cafeteria plan with an FSA option along with a qualified high deductible health plan allowing contributions towards an HSA account; then it’s not recommended contributing to both accounts concurrently since enrolling in one precludes inclusion in another program during overlapping periods.