You can use HSA funds for some insurance premiums, but not all of them

You can pay for health insurance premiums with HSA money in three specific situations: if you are receiving unemployment benefits, if you are retired and over 65, or if you are paying for long-term care insurance. Outside those three cases, the IRS does not allow HSA withdrawals to cover health insurance premiums—including premiums for your employer plan, the ACA marketplace, or Medicare parts B, D, or supplemental coverage.

The rule exists because HSAs are meant to cover out-of-pocket medical costs, not insurance itself. If you withdraw money for a non-may have access to premium, you owe income tax on that amount plus a 20 percent penalty. The IRS can audit your HSA records years later, so the risk is real.

The exception for people over 65 on Medicare is the most common loophole people use. If you are retired and enrolled in Medicare Part B or Part D, you can pay those premiums from your HSA without penalty. You can also pay for a Medigap or Medicare Advantage plan this way. But you cannot use HSA funds to pay premiums while you are still working and covered by an employer plan.

Key Takeaways

  • HSA funds can pay Medicare premiums (Part B, Part D, Medigap, or Medicare Advantage) once you are retired and over 65.
  • If you lose your job and receive unemployment benefits, you can use your HSA to pay COBRA or ACA marketplace premiums during that period only.
  • You cannot use HSA money for premiums on your employer health plan, even if you are paying your share of the cost.
  • Withdrawing HSA funds for non-may have access to premiums triggers income tax plus a 20 percent IRS penalty.
  • Long-term care insurance premiums can be paid from an HSA, but only up to annual limits that vary by age.

The three situations where HSA premium payments are allowed

Unemployment and COBRA or ACA coverage: If you are receiving unemployment insurance benefits under federal or state law, you can use your HSA to pay premiums for COBRA (continuation coverage from your former employer) or an ACA marketplace plan. This applies only while you are actively receiving unemployment checks. Once your unemployment benefits end, you can no longer use HSA funds for premiums, even if you stay on the same plan.

Medicare and retirement: Once you turn 65 and enroll in Medicare, you can withdraw HSA funds to pay Part B premiums (doctor and outpatient care), Part D premiums (prescription drugs), Medigap premiums, or Medicare Advantage plan premiums. This is the most common exception and applies for life. You do not have to be fully retired; you just have to be enrolled in Medicare.

Long-term care insurance: You can use HSA funds to pay premiums for a may have access to long-term care insurance policy. The IRS sets annual limits on how much you can withdraw this way—in 2024, the limit ranges from $450 to $3,000 depending on your age. These limits increase each year. You must have a policy that meets IRS standards; not all long-term care plans may have access to.

Why employer plan premiums are off-limits

Even though you pay part of your employer health insurance premium through payroll deduction, you cannot use HSA funds to reimburse yourself for that cost. The IRS treats employer premiums as a form of insurance, not a medical expense. This applies whether you pay the premium before or after taxes.

The same rule blocks HSA withdrawals for ACA marketplace premiums while you are employed, even if you buy the plan yourself. The only exception is if you are receiving unemployment benefits at the time you pay the premium.

If you try to withdraw HSA funds for an employer premium, the withdrawal is taxable income plus subject to the 20 percent penalty. You also lose the tax deduction for that HSA contribution. The IRS does not always catch this immediately, but HSA custodians (your bank or plan administrator) report all withdrawals, and the IRS cross-checks them against your tax return.

Medicare premiums and HSA withdrawals after 65

Once you enroll in Medicare, the rules change completely. You can use HSA funds to pay any Medicare premium without penalty or tax consequence. This includes Part B (which covers doctor visits and outpatient services), Part D (prescription drug coverage), Medigap policies (supplemental coverage sold by private insurers), and Medicare Advantage plans (the private alternative to Original Medicare).

You do not have to wait until you retire to use this exception. If you enroll in Medicare at 65 while still working, you can start using HSA funds for premiums immediately. Many people use this to offset the cost of Medicare while they continue to work part-time or full-time.

One important detail: you cannot use HSA funds to pay premiums for coverage you had before Medicare. If you are still on your employer plan at 65, you cannot use HSA money to pay that premium just because you also enrolled in Medicare. You can only pay the Medicare premiums themselves.

Long-term care insurance and HSA limits

Long-term care insurance premiums are a may have access to HSA expense, but the IRS caps how much you can withdraw each year. The limit depends on your age when you turn 65. For someone who turns 65 in 2024, the annual limit is $3,000. For someone who turns 65 in 2025, it is $3,160. These limits increase slightly each year to account for inflation.

The policy must meet IRS standards to may have access to. Most long-term care policies sold today do meet them, but you should confirm with your insurance company or your HSA custodian before withdrawing funds. If you withdraw more than the annual limit, the excess is taxable income plus subject to the 20 percent penalty.

This exception applies regardless of your employment status. You can use HSA funds for long-term care premiums while you are working, retired, or on Medicare.

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

If you use your HSA to pay a premium that does not fall into one of the three allowed categories, the withdrawal is treated as taxable income. You owe federal income tax on the amount at your ordinary tax rate, plus a 20 percent penalty on top of that. Some states also impose state income tax on the withdrawal.

The IRS does not always catch HSA violations immediately. Your HSA custodian reports all withdrawals to the IRS on Form 5498-SA, and the IRS compares that to your tax return. If there is a mismatch—for example, you withdrew $5,000 but did not report it as income—the IRS can audit you. Audits can happen years after the withdrawal, so the risk does not disappear after one tax season.

If you discover you made a mistake, you can sometimes correct it by filing an amended tax return (Form 1040-X) and paying the tax and penalty owed. It is better to ask your HSA custodian or a tax professional before you withdraw, rather than withdraw first and fix it later.

How to know if your situation qualifies

Before you withdraw HSA funds for any premium, check which category your situation falls into. If you are unemployed and receiving benefits, keep documentation of your unemployment status. If you are over 65 and on Medicare, you are clear to pay any Medicare premium. If you are considering long-term care insurance, confirm with your insurance company that the policy meets IRS standards.

Your HSA custodian can also answer questions about whether a specific premium qualifies. Many custodians have online resources or a customer service line. It costs nothing to ask, and getting the answer right before you withdraw is much cheaper than paying a penalty later.

If you are unsure, you can also consult a tax professional or call the IRS directly. The IRS has a helpline for HSA questions, though wait times can be long during tax season.

Frequently Asked Questions

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

No. Even though you pay part of your employer premium through payroll, you cannot use HSA funds to reimburse yourself for that cost. The only exception is if you are receiving unemployment benefits and using the HSA to pay COBRA or an ACA marketplace premium instead.

What if I am on Medicare and still working—can I use my HSA for both my employer plan and Medicare premiums?

You can use your HSA for Medicare premiums, but not for your employer plan premiums. If you are enrolled in both, you must pay the employer premium from another source and can only use HSA funds for the Medicare portion.

Does the unemployment exception cover any health plan, or just COBRA and ACA?

It covers COBRA and ACA marketplace plans only. If you buy a private plan directly from an insurer while unemployed, you cannot use HSA funds for that premium, even if you are receiving unemployment benefits.

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

Only if your spouse is over 65 and enrolled in Medicare, or if you are both receiving unemployment benefits and paying for a joint plan. Otherwise, no—HSA funds can only be used for your own may have access to medical expenses.

What if I already withdrew HSA funds for a non-may have access to premium—can I fix it?

Yes. You can file an amended tax return (Form 1040-X) and pay the income tax and 20 percent penalty owed. It is better to do this proactively than to wait for the IRS to catch it during an audit.