Here are 4 ways health savings accounts can be used to pay insurance premiums

by | Oct 26, 2023 | Financial

Hoozone | E+ | Getty ImagesHealth savings accounts have powerful tax benefits that make them an efficient way to save for future medical costs.But to harness their full potential, HSA funds must be used for qualified medical expenses.There’s a long list of qualifying costs — from artificial limbs to birth control pills, lead-based paint removal and fees to attend medical conferences. (Approved costs are those that generally qualify for the medical and dental expenses tax deduction, the IRS said.)More from Personal Finance:6 key terms to know as health insurance open enrollment startsThe connection between workers’ mental health, retirement savingsAs mortgage rates hit 8%, home ‘affordability is incredibly difficult’Insurance premiums — one of consumers’ main ongoing health-related costs — generally don’t qualify. However, there are four exceptions to this rule, according to the IRS. They are outlined below.What are HSAs?HSAs carry a triple tax advantage: Account contributions are tax-free, as are investment earnings and withdrawals if used for qualified expenses.Consumers can use HSA funds for a non-qualified purchase — but they’d lose a prong of the three-tiered tax benefit. A withdrawal would be taxed as income, similar to the way a pre-tax 401(k) or individual retirement account works.In an ideal world, consumers would be able to fully fund their HSA each year and pay for current health costs out-of-pocket, leaving the accounts untouched until retirement, according to financial advisors.”The compounding of earnings could fund all your health care when you’re old,” said Carolyn McClanahan, a physician and certified financial planner, based in Jacksonville, Florida.But it’s not always possible to use HSAs that way — especially for lower and middle earners who may not be able to shoulder those expenses. HSAs are typically paired with high-deductible health plans which, depending on the plan, could generate big bills for medical care.Here are four cases in which HSA funds can be applied to premiums:1. COBRA premiumsPremiums for health-care continuation coverage such as COBRA count as a qualified expense, according to the IRS.COBRA lets people who lose health benefits — due to circumstances like job loss, reduction in the hours worked, jobs transitions, death or divorce — continue their workplace health coverage on a temporary basis.COBRA coverage typically allows consumers to keep the same health-care providers, but the coverage is often pricey.When employed, workers generally only pay a share of the total premium, with th …

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