HSA Insurance Premiums: COBRA, Medicare, and Long-Term Care

You generally cannot use HSA funds to pay insurance premiums. The IRS treats premiums as separate from the out-of-pocket medical costs a Health Savings Account is designed to cover, and a withdrawal for a non-qualifying premium is taxed as income and hit with a 20% penalty.¹ There are exactly four exceptions, and they are narrower than most account holders assume.

The Default Rule on HSA Insurance Premiums

The statute draws a hard line: premiums are not qualified medical expenses except in four listed situations. That prohibition sweeps in more than people expect. Your monthly HDHP premium does not qualify. Neither does a spouse’s PPO premium, a marketplace plan premium outside of unemployment, a stand-alone dental or vision premium, or any employer-sponsored coverage. Life insurance, disability insurance, and supplemental policies that aren’t on the exception list are also out.¹

Pull HSA dollars for any of these and the entire withdrawal becomes taxable income plus the 20% additional tax. Ordinary medical costs stay qualified: doctor visits, prescriptions, dental, vision, hospital bills, copays, and coinsurance.² Premiums sit in a different box.

The Four Premium Types That Qualify

Congress carved out four situations where insurance premiums count as qualified medical expenses for HSA purposes. The list in the statute is exhaustive. If a premium type is not on it, it does not qualify.³

COBRA Continuation Coverage

If you lose employer coverage and elect COBRA to stay on the group plan, those premiums are a qualified HSA expense.¹ It doesn’t matter whether you were laid off, left voluntarily, or hit another qualifying event like a divorce or aging off a parent’s plan.

COBRA premiums often run two to three times what you paid as an employee, because your former employer is no longer subsidizing the cost. The exception covers the full COBRA premium, including dental and vision continuation if those were part of the group coverage.

Qualified Long-Term Care Insurance

Premiums for a tax-qualified long-term care policy can be paid from your HSA, but only up to an age-based annual cap. Anything above the cap paid from the account is a non-qualified withdrawal.¹ The 2026 limits by age at year-end:

Age 40 and under: $500
Age 41 to 50: $930
Age 51 to 60: $1,860
Age 61 to 70: $4,960
Age 71 and older: $6,200

The caps apply per person, so a married couple with two qualified policies each gets the full age-based limit. The policy itself has to meet the definition of a qualified long-term care insurance contract: guaranteed renewable, no cash surrender value, and generally no duplication of Medicare benefits.² Most policies sold today meet the standard, but confirm with your insurer before paying from the HSA.

Medicare Premiums After Age 65

Once you turn 65 and enroll in Medicare you can no longer contribute to an HSA, but you can keep spending the balance.¹ Medicare premiums are one of the strongest uses for that balance, because most of them qualify:

Part B (outpatient medical): qualified. Nearly everyone pays a Part B premium, and the full amount can come from your HSA.
Part D (prescription drug): qualified.
Part C (Medicare Advantage): qualified. These plans replace original Medicare and often bundle hospital, medical, and drug coverage into a single premium.
Part A (hospital): qualified, though most people get Part A premium-free after paying Medicare taxes for at least 10 years. If you owe a Part A premium, your HSA can cover it.
Medigap (Medicare supplement): not qualified. Medigap premiums cannot be paid tax-free from an HSA, even though the coverage supplements Medicare.⁴

The Medigap exclusion catches many retirees off guard, because Medigap and Medicare Advantage both fill gaps in original Medicare and feel similar. The IRS treats them differently. Medicare Advantage replaces original Medicare and qualifies. Medigap supplements it and does not.

Health Coverage While Receiving Unemployment

While you are collecting federal or state unemployment compensation, you can use HSA funds to pay premiums for any health plan during that period.¹ This is the broadest of the four exceptions. It covers COBRA, a marketplace plan, a spouse’s plan, or any other health coverage, not just an HDHP.

The exception runs only while you are actually receiving benefits. The moment payments stop, whether because you found work, exhausted your weeks, or voluntarily discontinued the claim, premiums paid after that point revert to non-qualified status. Keep records showing which months you received benefits so the timeline is clean if the IRS asks.

Paying Premiums for a Spouse or Dependent

HSA funds can generally cover qualified medical expenses for your spouse and tax dependents.³ That principle extends to the premium exceptions, with one notable limit.

COBRA and unemployment-period premiums for a qualifying spouse or dependent can come from your HSA. Medicare is tighter. If you, the account holder, are under 65, you generally cannot use your HSA to pay Medicare premiums for a spouse or dependent who is 65 or older. Once you turn 65, that restriction lifts.¹

A domestic partner who is not your tax dependent falls outside the HSA’s coverage rules entirely. You can’t use the account tax-free for their premiums, or their other medical expenses, unless they meet the IRS definition of a dependent.

Reimbursing Yourself Later

You don’t have to pay a qualifying premium directly from the HSA on the day it is due. The IRS allows tax-free distributions to pay or reimburse qualified medical expenses incurred after the HSA was established, and no deadline is set for when the reimbursement has to happen.¹

That opens a real strategy. Pay qualifying COBRA or Medicare premiums out of pocket, let the HSA balance keep growing tax-free, and reimburse yourself months or years later. You will need documentation of the expense, its date, and the amount, but the withdrawal itself remains tax-free whenever you take it.

One caveat matters. You cannot reimburse yourself for premiums already paid with pre-tax dollars, such as premiums deducted from your paycheck through an employer cafeteria plan. The statute requires that qualified expenses not be compensated for by insurance or otherwise, and a pre-tax deduction counts as prior compensation.³

What a Wrong Withdrawal Actually Costs

A withdrawal for a premium that doesn’t fall under one of the four exceptions hits you twice. The full amount is added to gross income and taxed at your ordinary rate. On top of that, you owe an additional 20% tax.¹ For someone in the 22% federal bracket, that works out to losing 42 cents of every dollar withdrawn, before any state tax.

The 20% additional tax is waived in three situations: you are 65 or older, you are disabled, or the distribution is made after the account holder’s death.¹ After 65 the penalty disappears, though a non-qualified withdrawal is still ordinary income. At that point the account functions much like a traditional IRA for anything beyond qualified medical costs.

Your custodian reports every distribution to the IRS on Form 1099-SA, and you report the qualified-versus-non-qualified split on Form 8889 with your return.⁵⁴

Records to Keep

You don’t send receipts with your return, but you must be able to prove three things for each distribution: it went to a qualified medical expense, it wasn’t reimbursed from another source, and you didn’t also claim it as an itemized deduction.¹

For premiums specifically, save the billing statement or invoice showing the amount and coverage period, proof of payment, and documentation of your qualifying status: a COBRA election notice, unemployment benefit statements, or Medicare enrollment confirmation. For long-term care premiums, keep something showing the policy is tax-qualified.

Hold these records for at least three years after filing the return that reports the distribution, which is the standard IRS assessment window. If you use the delayed-reimbursement strategy and pull funds years after paying the premium, keep records across the full span, from the date of the expense through three years after the return that reports the reimbursement.⁶

1
Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
2
Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
3
Legal Information Institute. 26 USC 223(d)(2) – Qualified Medical Expenses
4
Internal Revenue Service. 2025 Instructions for Form 8889
5
Internal Revenue Service. Form 1099-SA Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
6
Internal Revenue Service. Topic No. 305, Recordkeeping