Can I Pay Medicare Supplement Premiums From My HSA?

A Health Savings Account (HSA) offers a tax-advantaged way to save and pay for healthcare costs. Paired with high-deductible health plans, HSAs provide tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Medicare Supplement plans, also known as Medigap policies, help cover out-of-pocket expenses Original Medicare (Parts A and B) does not pay, such as deductibles, co-payments, and co-insurance. This article clarifies whether Medigap premiums can be paid using HSA funds.

Understanding HSA Qualified Medical Expenses

To understand what can be paid from an HSA, it is helpful to know what the IRS considers a “qualified medical expense.” These are costs for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any structure or function of the body. This includes common expenses like medical, dental, and vision care, prescription drugs, deductibles, and co-payments. The IRS provides detailed guidance in Publication 502. While many healthcare costs are eligible, health insurance premiums are generally not considered qualified medical expenses for HSA purposes, though specific exceptions exist.

Medicare Premiums and HSA Eligibility

Premiums for Medicare Supplement (Medigap) plans are generally not qualified medical expenses and cannot be paid from an HSA. Medigap policies cover gaps in Original Medicare but do not fall under the IRS’s specific exceptions for insurance premiums. These exceptions include qualified long-term care insurance, COBRA premiums, or healthcare coverage while receiving unemployment benefits.

However, premiums for certain other types of Medicare coverage can be paid from an HSA once an individual enrolls in Medicare. This includes premiums for Medicare Part A (if required), Medicare Part B, Medicare Part D, and Medicare Advantage (Part C) plans. These specific Medicare premiums are qualified medical expenses for individuals aged 65 or older, or for certain disabled Medicare beneficiaries.

Other Qualified Medical Expenses for Medicare Beneficiaries

Even though Medigap premiums are not eligible, an HSA remains a valuable tool for individuals enrolled in Medicare. HSA funds can be used to pay for a wide range of other out-of-pocket medical expenses that Medicare beneficiaries might incur. These include deductibles, co-payments, and co-insurance amounts required by Medicare Parts A and B. HSAs can also cover prescription drug costs after Medicare Part D coverage, dental care, vision care, and hearing aids. Premiums for qualified long-term care insurance policies are also considered eligible medical expenses.

Key Considerations for HSA Withdrawals

HSA withdrawals are tax-free when used for qualified medical expenses. This tax benefit applies to contributions, earnings, and distributions, making HSAs a triple tax-advantaged account. However, non-qualified withdrawals are subject to income tax and a 20% penalty if the account holder is under age 65.

Maintaining thorough records, such as receipts and Explanation of Benefits (EOBs), is important to substantiate qualified withdrawals for IRS audits. HSA funds are not subject to a “use-it-or-lose-it” rule, allowing balances to roll over and grow over time. This provides flexibility to save for future healthcare needs, including in retirement.