This question was submitted by HSA Edge reader Laura. Feel free to send in your question today to evan@hsaedge.com.
I was forced into early retirement and the company COBRA was outrageously expensive. I went to the marketplace and found a plan with Anthem. I have been paying for the coverage with HSA funds. Is this an eligible (covered) expense? I am not receiving unemployment benefits.
How to Pay for Premiums with HSA
It is unfortunate that HSA funds cannot be used for insurance premiums except in extenuating circumstances involving job loss. While it is possible this law will change in the future, currently it is not the case. Even so, the rules for paying insurance premiums while unemployed are strict. Long term care and Medicare are included, as is continuing health coverage such as COBRA. If those don’t apply, you can pay for health insurance while on unemployment benefits from the state/federal government. This clause explicitly requires being on state/federal unemployment compensation. Unfortunately this is usually the only real option as continuing coverage via employer sponsored COBRA insurance is excessively expensive.
The IRS spells this out when insurance premiums are considered qualified medical expenses in IRS Publication 969:
Insurance premiums. You can’t treat insurance premiums as qualified medical expenses unless the premiums are for:
- Long-term care insurance
- Health care continuation coverage (such as coverage under COBRA)
- Health care coverage while receiving unemployment compensation under federal or state law
- Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap)
That leaves most people going back to the market place for coverage. In theory, you can pay for any health insurance premium using HSA funds, but you must be unemployed. Specifically these premiums are a qualified medical expense if you are receiving federal or state unemployment compensation. I believe they do this as their filter for who is truly unemployed seeking assistance. So if you lose your job, you can sign up for any health insurance you want, and if you are receiving unemployment benefits, you can pay for the expenses with your HSA. This is part the strategy of building up your HSA to use as an unemployment safety net, as it does provide some flexibility for your funds if you lose your job.
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