Category Archives: Reader Question

Paying for Health Insurance Premiums with HSA Funds

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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Note: if you need help with your HSA tax forms, please consider using my service EasyForm8889.com to complete Form 8889. It is fast and painless, no matter how complicated your HSA situation.

HSA Contribution with Upcoming Medicare Coverage

This question was submitted by HSA Edge reader Deb. Feel free to send in your question today to evan@hsaedge.com.

I will be purchasing high deductible medical insurance on Sept. 1 of this year. I will qualify for Medicare on Sept. 1 of next year. Being that is only 11 months, would it be best to prorate the $3400 for 11 months for 2017 taxes in order to avoid a penalty, or would it be better to prorate each year (2017 and 2018) separately?

HSA’s and Medicare are very entangled as some of the Medicare rules can lead to over-contribution. I would urge you to further research this and apply it to your situation.

Please see my article: Medicare Part A Retroactive Coverage and HSA’s.

Basically, there is a clause in Medicare Part A that applies if you sign up for Medicare after your 65th birthday. In those cases, your Medicare coverage will retroactively apply up to 6 months prior to that date it truly began. Weird and crazy law. The problem is having Medicare coverage makes you HSA ineligible, so if you contributed to your Health Savings Account for those months it can lead to excess contributions.

Best case is this does not apply to your situation and your upcoming Medicare coverage truly beings on September 1st of 2018. Worst case it is will retroactively begin on March 1st, 2018.

As such, this limits your contribution amounts for 2017. I do not recommend using the Last Month Rule to contribute more in 2017, since you may end up failing the Testing Period in 2018 if Medicare kicks in. For 2017, you can safely contribute 4/12 (Sep Oct Nov Dec) of your contribution limit without issue. For 2018, you can contribute the pro rata amount of the months you have HSA insurance and do not have Medicare.

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Note: if you need help determining your HSA contributions in light of Medicare coverage, please consider using my service EasyForm8889.com to complete Form 8889. It is fast and painless, no matter how complicated your HSA situation.

Can Spouses Have Both an HSA and FSA?

This question was submitted by HSA Edge reader Eugenia. Feel free to submit your question today to evan@hsaedge.com.

My husband and I have different employers, and we would like to use an HSA and FSA. This November is an open enrollment for Health Insurance for 2018 and my husband plans to enroll in an HDHP Plan with self only coverage. Since my employer does not offer an HDHP, I will enroll myself and my son a PPO plan. Can we have both FSA medical and HSA? Since my husband’s insurance is self only coverage and my insurance is self and child only coverage. And how can my husband open the Health Savings Account?

You are correct in questioning the same year FSA and HSA contribution. Unfortunately, the IRS has deemed that FSA coverage extends tax benefits to family members as well. This is because an FSA holder can deduct medical expenses that occur for themselves, their spouse, and their dependents. This also applies inversely for HSA’s since they can deduct expenses for their family. This combination of two tax advantaged programs is a no-no as it violates the “No Other Health Coverage” clause of the HSA. (see Qualifying for an HSA).

Do note that there are some types of Flexible Spending Accounts that are compatible with HSA’s, such as Limited Purpose FSA’s and Post Deductible FSA’s. However, these are not as common as your regular FSA’s and they must be explicitly stated as such. Thus, it is up to the family to choose the HSA or FSA to avoid double coverage. You cannot have both. In making a decision, see this article regarding Choosing between an HSA and FSA.

As for opening an HSA, as long as your husband has a qualifying High Deductible Health Plan, he can open an HSA at whatever financial institution he wants. Here is a similar situation involving Opening an HSA when Your Employer does not Offer One. It is pretty easy. I suggest comparing banks that offer the lowest fees and best investment options to make a choice.

When it comes to contributing to the HSA, your husband can directly contribute to his HSA instead of taking salary deductions. This will be done with post-tax dollars, so he just writes a check to the Health Savings Account. Come tax time, when you file Form 8889, it will reduce your taxable income by the contribution amount, making those contributions tax free. However, do note that there is one disadvantage of contributing directly to the HSA, which is additional Social Security / Medicare taxes are paid. If you withhold the contributions from your paycheck, you never pay those extra taxes. If you contribute the post-tax money, you will have paid those taxes, but only get back the federal income tax you paid. It might not matter.

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Note: if you have an HSA, please consider trying my service TrackHSA.com for your Health Savings Account record keeping. You can store purchases, receipts, and reimbursements securely online.