Can Long-Term Care Insurance Premiums Be Paid From An HSA?

Shawn Plummer

CEO, The Annuity Expert

Can Long-Term Care Insurance Premiums Be Paid From An HSA?

A Health Savings Account (HSA) can be a highly advantageous tool to help you prepare for the costs of long-term care insurance. If you’re wondering if you can use your HSA funds to pay for long-term care insurance premiums, the answer is yes. Here’s why:

HSAs are linked to high-deductible health insurance plans and offer tax benefits. Long-term care insurance premiums are considered a qualified medical expense, making them eligible for payment from an HSA.

But what exactly is an HSA? Let’s dive deeper into this topic.

Key Takeaways:

  • HSAs can be used to pay long-term care insurance premiums, which are considered qualified medical expenses.
  • An HSA is a health savings account tied to a high-deductible health insurance plan.
  • Contributions made to an HSA are tax-deductible, and the funds grow tax-deferred.
  • Distributions from an HSA are tax-free if used for qualified medical expenses.
  • Hybrid insurance policies that separate life and long-term care premiums are now available, making them eligible for tax-free HSA withdrawals.

What is an HSA?

An HSA, or Health Savings Account, is a valuable tool tied to a high-deductible health insurance plan. It offers several tax advantages to help individuals save for healthcare expenses. Contributions to an HSA are tax-deductible, meaning they can reduce your taxable income. The funds in an HSA also grow tax-deferred, allowing your savings to accumulate over time without being subject to income taxes. Additionally, distributions from an HSA are tax-free if used for qualified medical expenses.

Qualified medical expenses include a wide range of healthcare costs, such as doctor visits, prescription medications, and medical supplies. And yes, long-term care insurance premiums are considered a qualified medical expense, making them eligible for payment from an HSA.

Qualifying for Tax-Free HSA Withdrawals

When it comes to using funds from your Health Savings Account (HSA) for long-term care insurance premiums, it’s crucial that the insurance policy meets specific requirements to qualify for tax-free withdrawals. A tax-qualified policy ensures that you can maximize the benefits of your HSA while protecting yourself against long-term care expenses.

To qualify for tax-free HSA withdrawals for long-term care insurance premiums, the policy must:

  • Be guaranteed renewable
  • Only pay for long-term care expenses
  • Have no cash value

Traditional long-term care insurance policies typically meet these qualifications, providing the reassurance you need to secure your future long-term care needs.

Qualifications for Tax-Free HSA WithdrawalsTraditional Long-Term Care Insurance Policies
Guaranteed RenewableYes
Only Pays for Long-Term Care ExpensesYes
No Cash ValueYes

Hybrid Policies and HSA Payments

Historically, hybrid insurance policies did not allow for HSA payments toward long-term care insurance premiums. However, there are now hybrid policies available that have separated the premiums for life and long-term care, making them tax-qualified under IRC 7702(B). This allows individuals to withdraw funds from their HSA tax-free to pay for their long-term care insurance premiums.

Specifically, insurance companies like Nationwide, One America, and Securian offer hybrid policies that meet the requirements for tax-qualified status. These policies, such as Nationwide’s CareMatters II, One America’s Asset Care, and Securian’s SecureCare, have implemented separately identifiable premiums for life insurance and long-term care insurance.

This separation of premiums is crucial as it ensures compliance with the guidelines set forth by IRC 7702(B), making the policies eligible for tax-free HSA withdrawals. By allowing individuals to use their HSA funds, hybrid policies provide a tax-efficient way to secure coverage for long-term care expenses.

Withdrawal Limits for HSA Payments

The amount you can withdraw tax-free from your HSA to pay long-term care insurance premiums is limited based on your age. Here are the age-based limits for 2021:

AgeWithdrawal Limit
40 and under$450
41-50$850
51-60$1,690
61-70$4,520
71 and older$5,640

If you have check writing capability from your HSA, you can write a check directly to the insurance company or reimburse yourself from your HSA up to the eligible age-based limit.

Benefits of Using an HSA for LTC Insurance Premiums

Using an HSA to pay for long-term care insurance premiums comes with several benefits, particularly for individuals as they age. While the initial premium deductions may not appear significant, they can become increasingly advantageous as the deductible limits increase with age. This can be especially helpful for seniors who experience a decrease in income during retirement, coupled with an increase in medical expenses. By utilizing an HSA to cover LTC insurance premiums, individuals can tap into the potential tax advantages and ensure they have coverage for future care needs.

Other Tax-Advantaged Healthcare Savings Options

In addition to Health Savings Accounts (HSAs), there are other options available for tax-advantaged healthcare savings. These include Health Reimbursement Arrangements (HRAs) and Medical Savings Accounts (MSAs). It’s important to note that a Flexible Spending Account (FSA) cannot be used for long-term care insurance premiums.

An HRA is an employer-funded account that allows employees to pay for qualified medical expenses. It is typically funded by the employer and can be used to reimburse employees for a range of healthcare expenses, including long-term care insurance premiums.

An MSA is a tax-advantaged savings account available to individuals who have high-deductible health insurance plans. Similar to an HSA, contributions to an MSA are tax-deductible, and the funds can be used to pay for qualified medical expenses, which may include long-term care insurance premiums.

Comparison of Tax-Advantaged Healthcare Savings Options

OptionTax Advantages
HSA– Contributions are tax-deductible
– Funds grow tax-deferred
– Withdrawals for qualified medical expenses are tax-free
HRA– Employer-funded account
– Reimbursements for qualified medical expenses are tax-free
MSA– Contributions are tax-deductible
– Withdrawals for qualified medical expenses are tax-free

While all three options offer tax advantages, it’s important to evaluate which one aligns best with your specific needs and circumstances. Consulting with a financial advisor or healthcare expert can help you make an informed decision.

Using HSA Funds for Long-Term Care Coverage

If you have a Health Savings Account (HSA), you can utilize it to pay for your long-term care insurance premiums. This provides you with the opportunity to take advantage of the numerous tax benefits that an HSA offers while ensuring that you have adequate coverage for your long-term care expenses.

An HSA is an eligible resource that allows you to fund your long-term care insurance premiums through tax-free withdrawals. By contributing to an HSA, you can accumulate funds and use them specifically for qualified medical expenses, including long-term care insurance premiums.

When it comes to eligibility for HSA withdrawals for long-term care premiums, it is essential that your insurance policy meets certain criteria. The policy must be considered tax-qualified, meaning it adheres to specific guidelines outlined by the Internal Revenue Code (IRC). Such guidelines may include guaranteed renewability and limitations on cash value. Traditional long-term care insurance policies typically meet these qualifications.

By using your HSA to pay for long-term care insurance premiums, you can benefit from the tax advantages that an HSA offers. Contributions to an HSA are tax-deductible, and the funds within the account grow tax-deferred. Furthermore, withdrawals from an HSA for qualified medical expenses, such as long-term care insurance premiums, are tax-free.

Here is an example of how using an HSA for long-term care insurance premiums can provide tax benefits:

AgeEligible HSA Withdrawal Limit
40 and under$450
41-50$850
51-60$1,690
61-70$4,520
71 and older$5,640

If you have check writing capability from your HSA, you can write a check directly to the insurance company or reimburse yourself from your HSA up to the eligible age-based limit for long-term care insurance premiums.

Pay For Long-Term Care With Hsa

Conclusion

Utilizing an HSA to pay for your long-term care insurance premiums allows you to leverage the tax advantages of an HSA while ensuring that you have coverage for potential long-term care expenses. If you have an HSA, consult with your insurance provider to explore the eligibility and benefits of using your HSA funds for long-term care coverage.

If you possess an HSA, Health Reimbursement Arrangement (HRA), or Medical Savings Account (MSA), these valuable resources can be utilized to finance your long-term care insurance premiums tax-free. Protecting yourself and your loved ones from potential long-term care costs becomes more accessible and financially viable through the strategic use of these healthcare savings options.

If you are interested in acquiring long-term care coverage and want to explore the benefits of utilizing your HSA, HRA, or MSA, please do not hesitate to contact us. Our team of experts is dedicated to providing you with personalized guidance and a free insurance quote tailored to your specific needs and preferences.

Request A Quote

Get help or a quote from a licensed financial professional. This service is free of charge.

Contact Us
First
Last

Frequently Asked Questions

Can long-term care insurance premiums be paid from an HSA?

Yes, long-term care insurance premiums can be paid from an HSA. Long-term care insurance premiums are considered a qualified medical expense, making them eligible for payment from an HSA.

What is an HSA?

An HSA, or Health Savings Account, is a valuable tool tied to a high deductible health insurance plan. Contributions to an HSA are tax-deductible, and the funds grow tax-deferred. Distributions from an HSA are tax-free if used for qualified medical expenses.

Qualifying for Tax-Free HSA Withdrawals

In order to qualify for tax-free HSA withdrawals for long-term care insurance premiums, the insurance policy must be considered tax-qualified. This means it must meet certain guidelines, such as being guaranteed renewable, only paying for long-term care expenses, and not having any cash value.

Hybrid Policies and HSA Payments

Historically, hybrid insurance policies were not structured properly to allow HSA payments for long-term care insurance premiums. However, there are now hybrid policies available, such as Nationwide’s CareMatters II, One America’s Asset Care, and Securian’s SecureCare, that have separated life and long-term care premiums. These premium separations make the policies tax-qualified under IRC 7702(B), allowing for tax-free HSA withdrawals to pay the long-term care premiums.

Withdrawal Limits for HSA Payments

The amount you can withdraw tax-free from your HSA to pay long-term care insurance premiums is limited based on your age. The age-based limits for 2021 are as follows: 40 and under: 0, 41-50: 0, 51-60:

 

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

Scroll to Top