Use HSA to Pay for Long Term Care Insurance Premiums

Pre-tax money in a Health Savings Account can pay for Long-Term Care Insurance premiums. The IRS is now allowing more money to be contributed to an HSA for 2023 and an additional “catch-up” for those aged 55 and older.

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Use HSA to Pay for Long Term Care Insurance Premiums
6 Min Read June 24th, 2015 Updated:October 21st, 2022

More American families now have tax-advantaged HSAs that they contribute through a payroll deduction at work. Health Savings Accounts, otherwise known as HSAs, can save you money with lower health insurance premiums. Some employers will match the employee's contributions to these tax-deferred plans. 

Each year the federal government allows you to contribute more money to these accounts, even allowing some people at certain ages to "catch up" and contribute even more money.

There are more advantages with an HSA as the pre-tax money in the account, growing tax-deferred, is your money for life. The money you don't need to use stays in the account and grows. There is an additional tax advantage as the money you contribute reduces your taxable income.

HSA vs. FSA 

Don't confuse Flexible Spending Accounts (FSAs) with HSAs. The money inside HSAs do not have to be used within a calendar year. It is your money (like a 401(k) and goes with you when you leave your job or retire. The money inside the HSA grows tax-deferred and comes out tax-free if used for qualified health-related expenses (including Long-Term Care Insurance premiums).

With an FSA, you can contribute pre-tax money to pay for a variety of health-related expenses like over the counter and prescription drugs and supplies, vision and dental care, and more. However, you must use the money within the calendar year. An FSA is a use-it-or-lose-it benefit.

HSA and Long-Term Care Insurance

Even though more Americans are purchasing Long-Term Care Insurance in their 40s and 50s, few are aware they can use the pre-tax money in these accounts to reimburse themselves for the cost of the premiums.

These pre-tax accounts, unlike flex plans, stay with you forever because you own the account. It is your money that can be used for any health-related expense. Health Savings Accounts have become more common as more employers are offering these plans. 

Many people already use this tax-free money to pay for the cost of Long-Term Care Insurance, making what is already affordable an even more significant value for many people. 

Yet, some people have not heard about this money-saving opportunity to pay various health-related expenses with pre-tax money. Plus, for those workers aged 55 and older, the IRS allows you to contribute even more money to an HSA.

There is a limit to the eligible amount of money you can use from your HSA to reimburse yourself for Long-Term Care Insurance. The same IRS chart used for eligible tax deductions for qualified LTC Insurance is used for the maximum amount reimbursable if using pre-tax from an HSA.

Attained Age Before Close of Tax Year

2022 Tax Year

2023 Tax Year

40 or younger

$450

$480

41-50

$850

$890

51-60

$1,690

$1,790

61-70

$4,510

$4,770

71 and older

$5,640

$5,960

 

2022 and 2023 HSA Contribution Limits

For 2023 you can contribute $3,850 for individual coverage or $7,750 for family coverage. For those age 55 and older, you are allowed an additional $1000 contribution for 'catch-up.'

See the chart below.

Contribution and Out-of-Pocket Limits for Health Savings Accounts and High-Deductible Health Plans 2023

Look for Open Enrollment if You Don't Have an HSA

Do you have an active account now? If not, when your employer's open enrollment for benefits comes out, you may want to consider a health plan which includes an option with a Health Savings Account. 

 You are eligible to participate in a Health Savings Account (HSA) only when you enroll in a high-deductible health plan (HDHP) and meet other requirements.

 HDHPs typically have a higher annual deductible and out-of-pocket maximums with a lower monthly premium. You must first satisfy the annual deductible before the plan pays for a portion of covered services, known as coinsurance. 

Remember, the money inside a Health Savings Account is your money. If you don't use all the money in the account, it stays in your account and earns interest or is invested like an IRA. 

Health Savings Account Advantages

Contributions to the HSA reduce your taxable income. Even if you are self-employed and have a qualified health insurance plan, you have a Health Savings Account.  

  • If you're an employee, the money you contribute gets deposited into the account "pre-tax," – so you are not taxed on that amount. Your employer can also make contributions on your behalf, and the contribution and that amount is not included in your gross income.

  • Withdrawals for qualified medical expenses, including dental and vision, drugs, and Long-Term Care Insurance premiums are never taxed.

  • Interest or investment earnings accumulate tax-deferred and if used to pay qualified medical expenses, are always tax-free.

  • You keep the money in your account, and the account is portable if you leave your employer or retire.

  • Others can contribute to your HSA. Contributions can come from various sources, including you, your employer, a relative, and anyone else who wants to add to your HSA. However, the amount can never exceed the IRS limits are any tax year.

Qualified Medical Expenses

Examples of qualified medical expenses include (but are not limited to):

  • Acupuncture

  • Alcoholism treatment

  • Ambulance services

  • Chiropractors

  • Contact lens supplies

  • Dental treatments

  • Diagnostic services

  • Doctor's fees

  • Eye exams, glasses, and surgery

  • Fertility services

  • Guide dogs

  • Hearing aids and batteries

  • Hospital services

  • Insulin

  • Lab Fees

  • Long-Term Care Insurance premiums

  • Prescription medications

  • Nursing services

  • Surgery

  • Psychiatric care

  • Telephone equipment for the visually or hearing impaired

  • Therapy or counseling

  • Wheelchairs

  • X-rays

Remember - HSAs are NOT Use it OR Lose it

Remember, unlike flexible spending accounts, you don't have to "use it or lose it" with an HSA each year. In fact, more than three-quarters of HSA account holders withdraw less than they contribute, and roughly a quarter of people don't touch any money from their accounts. This means this pre-tax money is growing and working for you.

Using HSA to Safeguard Retirement Funds with Pre-Tax Money.

More people are aware of the need to plan for the costs and burdens related to aging and declining health. Traditional health insurance and Medicare will not pay for most long-term health care costs.

Long-Term Care Insurance has become a more significant part of retirement planning. When you purchase Long-Term Care Insurance when you are younger and healthier, the premiums are much lower. When you use pre-tax money from an HSA, it makes LTC Insurance even more affordable.

Long-Term Care Insurance provides you with access to your choice of quality care in the setting you desire without placing an undue burden on your family members. It covers all types of services giving your loved ones time to be family instead of caregivers.

There are a variety of available qualified plans to choose from. A specialist can assist you in obtaining accurate quotes and finding affordable coverage based on your age, health, and family history.

After Age 65 - Now What?

Once you turn 65, your Health Savings Account still works for you - remember - it is YOUR pre-tax money - growing tax-deferred. 

When you turn 65, you can use the money in the HSA in any way you wish. You are no longer required to use the HSA funds only for qualified health care expenses and Long-Term Care Insurance premiums. 

If you use the money for other things, you will pay the income tax on the funds like you would from any qualified retirement account. Depending on the amount of money in the account, many people continue to use the money for health-related expenses. The money would come out tax-free if used for qualified expenses.

Remember, your health savings account continues to work for you once you retire. HSA distributions can pay for Medicare premiums for Part B, a Medicare Advantage plan (Part C), a prescription drug plan (Part D), and your Long-Term Care Insurance. This money can also be used for Medicare expenses such as copayments and deductibles if you have any (depending on the Medicare Supplement you choose).

Bottom Line

The consequences of aging are a reality that should be addressed before you retire. A Health Savings Account has many advantages, including using pre-tax money to pay your premium.

People need long-term health care for various reasons, including an accident or chronic illness, mobility problems, dementia, and the frailty of aging. We cannot escape these from happening, but you can prepare for them so you can protect assets and reduce family stress.

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About the Author

An LTC News author focusing on long-term care and aging.

LTC News Contributor James Kelly

James Kelly

Contributor since August 21st, 2017

Editor's Note

So, how will you handle paying for future long-term health care? The cost of care services is exploding nationwide. Your budget probably would be unable to pay $4000 to $10,000 or more every month for your care without a considerable dent in your 401(k) or other assets.

Health insurance, including Medicare, will not pay for most long-term care services. You will either pay for care yourself or rely on family and friends to become your caregiver - or both.

You have many options to choose from the several top insurance companies that offer coverage. Be sure your policy meets federal guidelines. Federal tax incentives are available in some situations, including using pre-tax money from your Health Savings Account.

Because of the complicated nature of these products, it is best to seek the assistance of a qualified Long-Term Care Insurance specialist. These will assess your health with the underwriting criteria of each insurance company. Plus, premiums can vary over 100% between insurance companies. Insurance products and their premiums are regulated, so individual agents cannot provide you with "special deals." You can then review the accurate quotes from all the top companies and decide which coverage is right for you.

Tools and Resources Available on LTC NEWS

There are a variety of tools and resources that LTC NEWS offers that can help you in your research:

How About Elderly Parents?

If your older parents or family members are declining and need help now, what can you do to help? You can get help finding quality caregivers or long-term care facilities and get recommendations for a proper care plan, whether or not they have an LTC policy. - Filing a Long-Term Care Insurance Claim | LTC News

If your loved one is lucky enough to own a Long-Term Care Insurance policy, be sure they use it. Sometimes families wait, thinking they can save the benefits for a rainy day. Waiting on using available Long-Term Care Insurance benefits is not a wise idea. 

Is a Reverse Mortgage Helpful?

Today's reverse mortgages for those aged 62 and older could be an ideal resource. You can fund a Long-Term Care Insurance policy OR even provide money to pay for care if you, or a loved one, already needs help and assistance. 

You might be eligible at younger ages as well. 

Some people have much of their savings invested in their homes. With today's reverse mortgages, you can find ways to fund care solutions, care itself, and even help with cash flow during your retirement. 

Learn more by asking questions to an expert. Mike Banner, LTC NEWS columnist and host of the TV Show "62 Who Knew," will answer your questions regarding caregiving, aging, health, retirement planning, long-term care, and reverse mortgages. 

- Just "Ask Mike." - Reverse Mortgages | LTC News.

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