Can You Use HSA for Medicare Premiums?

A Health Savings Account, or HSA, is a tax-advantaged savings vehicle paired with a high-deductible health plan. It allows individuals to set aside money on a pre-tax basis to pay for qualified medical expenses. The funds grow tax-deferred and can be withdrawn tax-free for eligible costs, offering a triple-tax advantage.

Medicare is the federal health insurance program primarily for individuals aged 65 or older. It also provides coverage for certain younger people with disabilities and individuals with End-Stage Renal Disease. The program is divided into different parts, and understanding how an HSA and Medicare interact is important for financial planning in retirement.

Paying Medicare Premiums with an HSA

Once an individual reaches age 65, the rules governing Health Savings Accounts allow for the tax-free withdrawal of funds to pay for certain Medicare premiums. You can use your HSA to pay for Medicare Part B premiums, which cover doctor visits and other outpatient services. The funds can also be applied to premiums for Medicare Part D, the prescription drug coverage component of the program.

This tax-free treatment extends to premiums for Medicare Advantage plans, also known as Part C. These are private insurance plans that bundle Part A, Part B, and often Part D coverage. If you do not qualify for premium-free Medicare Part A (Hospital Insurance) and must pay a monthly premium, those payments are also considered a qualified medical expense.

A notable exception to this rule is Medicare Supplement Insurance, or Medigap. Premiums for Medigap policies are not considered a qualified medical expense under IRS guidelines. Therefore, you cannot use your HSA funds on a tax-free basis to pay for this supplemental coverage.

Using HSA Funds for Other Medicare-Related Costs

Beyond premiums, your HSA balance can be used tax-free to cover a wide range of out-of-pocket costs associated with Medicare. These qualified medical expenses include deductibles, copayments, and coinsurance required for services and items under all parts of Medicare. This allows you to use your pre-tax savings to manage the direct costs of doctor visits, hospital stays, and prescription drugs.

The HSA can also be used for medical, dental, and vision expenses that Medicare may not cover at all. This can include things like hearing aids, eyeglasses, or extensive dental work. The definition of a qualified medical expense is broad and is outlined in IRS Publication 502, “Medical and Dental Expenses.”

Long-Term Care Insurance Premiums

A specific rule allows for the use of HSA funds to pay for qualified long-term care insurance premiums. The amount you can withdraw tax-free for this purpose is not unlimited; it is subject to annual, age-based limits set by the IRS. These limits dictate the maximum premium amount that can be treated as a qualified medical expense each year.

For 2025, the IRS has established specific limits based on the policyholder’s age at the end of the tax year:

• Aged 40 or under: $480
• Aged 41 to 50: $900
• Aged 51 to 60: $1,800
• Aged 61 to 70: $4,810
• Aged 71 or older: $6,020

HSA Contribution Rules After Medicare Enrollment

Once you are enrolled in any part of Medicare, including premium-free Part A, you are no longer eligible to make new contributions to your HSA. Your eligibility to contribute ends on the first day of the month you are enrolled in Medicare. This rule is in place because Medicare itself is not considered a high-deductible health plan, a prerequisite for HSA contributions.

For the year you enroll in Medicare, your contribution limit is prorated. You can contribute for the number of months you were eligible before your Medicare coverage began. For example, if your coverage starts on July 1, you can contribute for the first six months of the year, which amounts to half of the annual maximum.

Making contributions after your eligibility ends results in an excess contribution. These excess amounts are not tax-deductible and are subject to a 6% excise tax for each year they remain in the account. To avoid this penalty, you must withdraw the excess contribution, along with any earnings it generated, before the tax filing deadline for that year.

A timing issue arises for those who delay Medicare enrollment past age 65, as your Part A coverage can be backdated by up to six months from your enrollment date. To avoid making an excess contribution during this retroactive period, it is advisable to stop contributing to your HSA at least six months before you enroll in Medicare.

Making Withdrawals from Your HSA

Most HSA administrators provide a debit card linked directly to your account. This card can be used at the point of service, such as a pharmacy or doctor’s office, to pay for costs directly from your HSA balance.

Another common method is to pay for the expense out-of-pocket with personal funds and then reimburse yourself from the HSA. This involves submitting a withdrawal request to your HSA administrator. Some administrators may also offer a bill-pay service that allows you to arrange for a direct payment from your HSA to the medical provider.

You should retain all receipts and Explanation of Benefits (EOB) statements from Medicare or your insurance provider. These documents serve as proof that your withdrawals were used for qualified medical expenses. In the event of an IRS audit, you will need this documentation to verify the tax-free status of your HSA distributions.