Do You have a Health Savings Account?

Did you know you can use it to pay long-term care insurance premiums?

An HSA is a valuable tool tied to a high deductible health insurance plan that can help pay for qualified health care expenses. You get a tax deduction on your contributions and your benefits grow tax-deferred. Plus, the distributions are tax-free if used for medical expenses. That’s a triple threat! Since long-term care insurance premiums are considered a medical expense, you can use your HSA to pay your premiums.

You can even use an HRA or MSA to fund your premiums, but not an FSA.

Tax-Qualified

To qualify for a tax-free HSA withdrawal, your long-term care insurance policy must be considered tax-qualified. A tax-qualified long-term care insurance policy must follow guidelines that are in IRC 7702(B). “Tax-qualified” means that your policy must be guaranteed renewable, it can only pay for long-term care expenses, and it can’t have any cash value.

Generally, traditional long-term care insurance policies are tax-qualified. Carriers such as Mutual of Omaha, NGL, and Thrivent all have traditional tax-qualified policies. Historically, hybrid policies were not structured properly to allow you to use your HSA to fund your long-term care premiums. However, now there are hybrid policies that are structured properly so that you can take advantage of your HSA. Some of the most popular hybrid policies today are Nationwide’s CareMatters II, One America’s Asset Care, and Securian’s SecureCare.

These hybrid policies are structured so that the life and long-term care premiums are separated. Since the premiums are “separately identifiable,” they meet the definition of tax-qualified under IRC 7702(B) and you can withdraw money tax-free from your HSA to pay the LTC premium, but not the life premium.

How Much Can I Withdraw Tax-Free From My HSA?

You can take a tax-free HSA withdrawal to pay long-term care insurance premiums, but only up to your Eligible age-based limit. The age-based limits in 2021 are:

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 (up to the Eligible age-based limit) OR you can reimburse yourself from your HSA (up to the Eligible age-based limit). You can also use your HSA to pay premiums for your spouse and current tax dependents.

Your premium deductions may not be significant early on in your policy because the limits are lower, but as you get older, it becomes even more beneficial since the deductible limits increase.

For seniors whose income decreases in retirement and medical expenses increase, this is very helpful!

The Bottom Line

If you have an HSA, HRA or MSA, they are valuable resources that you can use to fund your long-term care insurance premiums through tax-free withdrawals.