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

You can use an HSA to pay health insurance premiums in four situations only: COBRA continuation coverage, qualified long-term care insurance, most Medicare premiums once you turn 65, and any health coverage during a period you’re receiving unemployment compensation. Every other premium — your regular HDHP premium, a spouse’s employer plan, a marketplace policy outside of unemployment, a standalone dental or vision plan, Medigap, life or disability insurance — is a non-qualified expense. Pay one of those from your HSA and the withdrawal becomes taxable income plus a 20% additional tax.¹

The statute lists these four exceptions exhaustively. If a premium type isn’t on the list, it doesn’t qualify, no matter how medically necessary the underlying coverage is.²

COBRA Continuation Coverage

If you lose employer coverage and elect COBRA, the premiums are a qualified HSA expense.¹ The reason for the job loss doesn’t matter — layoff, resignation, divorce from a covered spouse, or aging off a parent’s plan all count as qualifying events for COBRA, and the HSA exception applies in each case.

The exception covers the full COBRA premium, including any dental or vision continuation your former employer’s plan bundled into the group coverage. COBRA premiums typically run two to three times what you paid as an active employee because the employer subsidy disappears, so being able to draw tax-free from the HSA during that stretch is one of the account’s more valuable uses.

Qualified Long-Term Care Insurance

Premiums on a tax-qualified long-term care policy can come from your HSA, but only up to an annual cap set by your age at the end of the tax year.¹ Anything above the cap paid from the HSA is a non-qualified withdrawal. The 2026 limits, per person:

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

If both you and your spouse hold qualified policies, each of you gets the full age-based limit. The policy has to meet the definition of a qualified long-term care insurance contract: guaranteed renewable, no cash surrender value, and it generally cannot duplicate Medicare benefits.³ Most policies sold today qualify, but confirm with the insurer before paying from the HSA.

Medicare Premiums After 65

Once you turn 65 and enroll in Medicare, you can no longer contribute to an HSA, but the balance you already have can pay most Medicare premiums tax-free.¹

Part B (outpatient medical): qualified.
Part D (prescription drug): qualified.
Part C (Medicare Advantage): qualified. These plans replace original Medicare and often bundle hospital, medical, and drug coverage into one premium.
Part A (hospital): qualified, but most people get Part A premium-free after 10 years of Medicare taxes. If you owe a Part A premium, the HSA covers it.
Medigap (Medicare supplement): not qualified.⁴

The Medigap exclusion trips up a lot of retirees, because Medigap and Medicare Advantage seem to do similar work — both cover gaps in original Medicare. The IRS treats them differently. Medicare Advantage replaces original Medicare and qualifies. Medigap supplements it and does not.

Health Coverage While Receiving Unemployment

If you’re collecting federal or state unemployment compensation, HSA funds can pay health insurance premiums for any plan during that period.¹ This is the widest of the four exceptions. It covers COBRA, a marketplace plan, a spouse’s plan, or anything else — not just HDHP coverage.

The exception runs only as long as the benefits do. The month your unemployment stops — new job, exhausted weeks, or a voluntary end to the claim — premiums paid after that point stop qualifying. Keep the benefit statements so the timeline is clear if the IRS ever asks.

What Still Doesn’t Qualify

Outside those four boxes, premiums don’t come out tax-free. Your monthly HDHP premium, a spouse’s PPO premium, marketplace premiums when you’re not receiving unemployment, standalone dental or vision premiums, Medigap, life insurance, disability insurance, and supplemental policies are all non-qualified.¹

You also can’t reimburse yourself from the HSA for premiums that were already paid with pre-tax dollars, such as premiums deducted from your paycheck through an employer cafeteria plan. The statute requires that a qualified expense not be “compensated for by insurance or otherwise,” and a pre-tax deduction is that prior compensation.²

Paying Premiums for a Spouse or Dependent

HSA funds generally cover qualified medical expenses for your spouse and tax dependents, and that extends to the premium exceptions with two limits worth knowing.²

COBRA and unemployment-period premiums for a spouse or dependent qualify, provided that person meets the requirements for the coverage. Medicare is the exception with a twist: 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.¹ Once you turn 65 yourself, that restriction lifts.

A domestic partner who isn’t your tax dependent falls outside the account’s coverage rules entirely. You can’t pay their premiums — or their medical bills — tax-free from your HSA.

Reimbursing Yourself Later

You don’t have to pay a qualifying premium directly out of the HSA the month it’s billed. The IRS allows tax-free distributions to “pay or reimburse” qualified medical expenses incurred after the HSA was established, and sets no deadline for taking that reimbursement.¹

That opens a legitimate strategy: pay qualifying COBRA or Medicare premiums out of pocket, let the HSA keep growing tax-free, and reimburse yourself months or years later. You need documentation that the expense was incurred, when, and for how much, but the withdrawal stays tax-free whenever you take it.

What It Costs If You Get It Wrong

A withdrawal for a premium that doesn’t fit one of the four exceptions gets taxed twice. The full amount is added to your gross income for the year at your ordinary rate, and you owe an extra 20% tax on top.¹ For a filer in the 22% federal bracket, that’s 42 cents on the dollar gone before state tax touches it.

The 20% penalty is waived in three cases: the account holder is 65 or older, the account holder is disabled, or the distribution is made after the account holder’s death.¹ After 65 a non-qualified withdrawal is still taxable income, but with no penalty the HSA behaves much like a traditional IRA.

Your custodian reports every distribution to the IRS on Form 1099-SA.⁵ Sorting qualified from non-qualified is on you, and you report the split on Form 8889 with your return.⁴

Records to Keep

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

For premiums, save the invoice showing the amount and coverage period, proof of payment, and documentation of the qualifying status behind it — a COBRA election notice, unemployment benefit statements, or Medicare enrollment confirmation. For long-term care, keep evidence that the policy is tax-qualified.

Hold the records at least three years after filing the return that reports the distribution, matching the standard IRS assessment window. If you’re using the delayed-reimbursement approach and pulling the money out years after paying the premium, keep the paperwork all the way through: from the date of the original expense until 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
Legal Information Institute. 26 USC 223(d)(2) – Qualified Medical Expenses
3
Internal Revenue Service. Publication 502 (2025), Medical and Dental 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