Can You Pay Long Term Care Premiums With HSA?
Understand the specific IRS rules for using an HSA for long-term care, clarifying the important financial distinctions between premiums and direct services.
A Health Savings Account (HSA) is a tax-advantaged savings account for individuals with a high-deductible health plan to set aside funds for future medical costs. Separately, long-term care insurance provides coverage for ongoing personal and custodial care services that are often not paid for by standard health insurance policies or Medicare. Understanding the specific regulations is part of financial planning, as the Internal Revenue Service (IRS) details how and when these two financial tools can be used together.
Permitted Use of HSA Funds for Premiums
Distributions from an HSA can be used to pay for long-term care insurance premiums, but the policy must be a “tax-qualified” contract. These contracts are defined under Internal Revenue Code Section 7702B and must adhere to specific guidelines to be eligible for payment with tax-free HSA dollars. Using HSA funds for this purpose allows an individual to pay for this insurance premium without incurring income tax on the withdrawal.
A tax-qualified policy has several features. The contract must be guaranteed renewable, meaning the insurer cannot cancel it if premiums are paid. It must also be limited to covering only qualified long-term care services and cannot provide a cash surrender value or other benefits that can be pledged as collateral for a loan.
Some insurance products, often called hybrid policies, combine life insurance with a long-term care rider. For these policies, HSA funds can only be used if the premium costs for the long-term care portion are separately identifiable from the life insurance portion. The account holder can only use HSA funds to pay for the distinct long-term care premium amount, ensuring tax-advantaged funds are used exclusively for qualified medical care.
Annual Contribution Limits for Premiums
The amount of a long-term care insurance premium that can be paid from an HSA on a tax-free basis is limited. The IRS imposes annual limits on these payments based on the policyholder’s age as of the end of the tax year, and these limits are adjusted periodically for inflation. For the 2025 tax year, the amounts that can be treated as a qualified medical expense are:
- Age 40 or younger: $480
- Age 41 to 50: $900
- Age 51 to 60: $1,800
- Age 61 to 70: $4,810
- Age 71 or older: $6,020
These limits apply on a per-person basis. If a married couple both have their own long-term care insurance policies, each spouse can use their HSA funds up to their individual age-based limit. For example, if both spouses are over 70, they could use a combined total of up to $12,040 from their HSAs for their premiums. Any premium payment that exceeds these specified limits cannot be paid with tax-free HSA funds.
Tax Implications of Premium Payments
If a withdrawal for a premium exceeds the applicable age-based limit for the year, the excess amount is not considered a qualified medical expense. The portion of the withdrawal that exceeds the limit must be included in the individual’s gross income for that tax year and is subject to ordinary income tax. In addition to income tax, this excess amount is generally subject to a 20% additional tax penalty.
All distributions from an HSA are reported on IRS Form 8889, which is filed with an individual’s annual tax return.
Certain exceptions can prevent the 20% penalty from being applied, though the excess amount remains taxable as income. The penalty is waived if the HSA distribution is made after the account holder turns 65, becomes disabled, or dies.
Paying for Long Term Care Services
A distinction exists between using an HSA to pay for long-term care insurance premiums and using it to pay for actual long-term care services. While premium payments are subject to the age-based annual limits, payments for qualified long-term care services are not. Once an individual requires care, they can use their HSA funds to pay for these services directly, and the entire amount is treated as a qualified medical expense.
Qualified long-term care services are defined as necessary diagnostic, preventive, therapeutic, treating, and rehabilitative services, as well as maintenance or personal care services. These services must be required by a “chronically ill” individual and prescribed by a licensed health care practitioner.
A person is considered chronically ill if they are unable to perform at least two Activities of Daily Living (such as eating or bathing) for at least 90 days, or if they require substantial supervision due to a severe cognitive impairment.
For example, an individual could use their HSA to pay for in-home nursing care, physical therapy in an assisted living facility, or services related to managing a cognitive condition. These withdrawals are tax-free and penalty-free, regardless of the account holder’s age.