Can You Use an HSA for Medicare Premiums?

Health Savings Accounts (HSAs) offer a tax-advantaged way to save for healthcare expenses. Medicare provides federal health insurance coverage for millions of Americans. A common question is whether HSA funds can cover Medicare premiums. While new HSA contributions generally stop upon Medicare enrollment, existing HSA funds can be used for specific Medicare premiums under certain conditions.

Qualified Medicare Premiums and HSA Eligibility

Using funds from a Health Savings Account (HSA) for Medicare premiums is permissible for specific parts of Medicare, treating these premiums as qualified medical expenses. This includes premiums for Medicare Part B (medical insurance), Medicare Part C (Medicare Advantage plans), and Medicare Part D (prescription drug coverage). For individuals who are not premium-free, Medicare Part A (hospital insurance) premiums can also be paid from an HSA. The Internal Revenue Service (IRS) outlines what constitutes a qualified medical expense, and eligible Medicare premiums fall under this classification.

However, premiums for Medigap (Medicare Supplement Insurance) policies are generally not considered qualified medical expenses for HSA distribution purposes. These policies are designed to cover out-of-pocket costs not paid by Original Medicare, such as deductibles, copayments, and coinsurance. While Medigap plans supplement Medicare, their premiums do not qualify for tax-free HSA distributions.

Once an individual enrolls in any part of Medicare, including premium-free Medicare Part A, they generally become ineligible to make new contributions to an HSA. This rule applies even if an individual only enrolls in Medicare Part A but continues to work and is covered by an HSA-eligible high-deductible health plan.

Despite the cessation of contributions, individuals who have existing funds in an HSA before enrolling in Medicare can continue to use those funds. These accumulated funds remain available for qualified medical expenses, including the aforementioned eligible Medicare premiums. This allows individuals to leverage their tax-advantaged savings for healthcare costs during retirement, even after transitioning to Medicare coverage.

For instance, if an individual enrolls in Medicare Part B, the monthly premium, which is typically deducted from Social Security benefits, can be reimbursed from their HSA. The standard monthly premium for Medicare Part B in 2025 is set by the Centers for Medicare & Medicaid Services (CMS) and can vary based on income. Similarly, the premiums for private Medicare Advantage plans (Part C) and stand-alone Part D prescription drug plans are also eligible expenses. These premiums can be paid using HSA funds.

While new contributions stop, the flexibility to use accumulated HSA funds for a broad range of qualified medical expenses, including many Medicare premiums, remains a valuable benefit. This ensures that the tax advantages of an HSA can extend well into retirement, helping to manage healthcare costs.

How to Use Your HSA for Medicare Premiums

Accessing your Health Savings Account (HSA) funds for qualified Medicare premiums involves a straightforward process. Ensure any distribution from your HSA is properly documented to maintain its tax-free status. Funds can be used for eligible Medicare premiums even after you stop contributing, provided the expenses were incurred after the HSA was established.

There are two main methods for using your HSA to pay for Medicare premiums. The first involves direct payment from your HSA administrator, if offered. Some HSA custodians provide options to pay providers, including Medicare, directly from your account. This simplifies the process, as funds are transferred from your HSA to the premium billing entity, automatically creating a record.

The second and more common method is to pay for the Medicare premiums out-of-pocket and then reimburse yourself from your HSA. For example, if your Medicare Part B premium is deducted from your Social Security benefit, you can initiate a distribution from your HSA to your personal bank account for that amount. This method requires meticulous record-keeping to substantiate the qualified medical expense.

Maintaining comprehensive records of all Medicare premium payments is important. This includes statements from Medicare or your Medicare plan provider showing the premium amount, along with any bank statements or Social Security benefit statements confirming the payment. These records serve as proof that the HSA distribution was for a qualified medical expense, which is essential if the IRS ever requests verification. Without proper documentation, a distribution could be considered taxable income and subject to an additional 20% penalty if you are under age 65.

When you take a distribution from your HSA for qualified medical expenses, including eligible Medicare premiums, the funds are distributed tax-free. This means you do not pay federal income tax on the money withdrawn. There is no specific timeframe by which you must reimburse yourself, as long as the expense was incurred after your HSA was established.