Author Topic: HSA and health insurance premiums  (Read 826 times)

less4success

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HSA and health insurance premiums
« on: May 23, 2024, 08:24:19 PM »
Other than long-term care, COBRA, Medicare, and when receiving unemployment, can you reimburse health insurance premium payments from an HSA?

My understanding (for a long time) has been (and still is): no, you can't (without taxes/penalties).

But for some reason, I've found multiple sources on the web claiming otherwise. Most read like SEO spam, but here's one directly from my HSA custodian, Fidelity (published just last week; emphasis mine):

https://www.fidelity.com/learning-center/smart-money/hsa-benefits

Quote
HSA dollars could pay for some insurance premiums

You can pay premiums using HSAs in the following situations:

...

    Any insurance premiums for which you do not claim a credit or deduction. Premiums ineligible for reimbursement would include: those deducted from a paycheck pre-tax, included as itemized medical expenses, or subsidized by the premium tax credit. For example, if gross premiums for a public marketplace plan are $15,000 and net premiums are $5,000, the $5,000 in net premiums can be reimbursed from the HSA, but the $10,000 already covered by the premium tax credit subsidy cannot be reimbursed.

I double-checked the 2023 IRS Pub 969 and it seems to clearly state that this is not allowed.

Did something change for 2024? Am I misreading Fidelity's article? Some other explanation?
« Last Edit: May 23, 2024, 08:45:14 PM by less4success »

secondcor521

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Re: HSA and health insurance premiums
« Reply #1 on: May 23, 2024, 11:36:01 PM »
The Fidelity article is wrong.  OK, technically it's not wrong, but it's very very misleading.

The Fidelity article clearly implies, by grouping that last bullet item which you quoted with the previous ones, that such a distribution would be a qualified medical expense.  It isn't.

You *could* use HSA money to pay for the unsubsidized part of an ACA policy.  However, it would not be a distribution for qualified medical expenses per the HSA rules in the instructions for Form 8889, so it would be subject to taxes and/or penalties depending on your age when you made the distribution.

I'm guessing that the author of the article and/or the editor aren't that familiar with tax law, or are simply confused.  They might be confused because medical premiums paid out of pocket (including ACA unsubsidized premiums) *can be* included as medical expenses for purposes of Schedule A itemized deductions.  But the HSA rules in this area are more restrictive, which is the part they seem to have missed.

Generally speaking, the better websites (and I would include Fidelity here) will be more accurate the the rest of the web (and AI answers) but they are sometimes inaccurate as in this case here.  Often they are written in a very general tone which is appropriate for educational purposes.

Such articles usually also have a disclaimer that says that they're for general information and that you should consult your tax advisor and/or the IRS rules/regulations/instructions in all cases.  This article has one at the bottom of the page.
« Last Edit: May 23, 2024, 11:39:41 PM by secondcor521 »

less4success

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Re: HSA and health insurance premiums
« Reply #2 on: May 24, 2024, 09:31:43 AM »
The Fidelity article is wrong.

Thanks for confirming!

Generally speaking, the better websites (and I would include Fidelity here) will be more accurate the the rest of the web (and AI answers) but they are sometimes inaccurate as in this case here.  Often they are written in a very general tone which is appropriate for educational purposes.

Such articles usually also have a disclaimer that says that they're for general information and that you should consult your tax advisor and/or the IRS rules/regulations/instructions in all cases.  This article has one at the bottom of the page.

Yeah, I wouldn't have blinked if I'd seen this on some SEO-optimized garbage site with a table of contents followed by paragraphs of AI regurgitations interspersed ads, but this was on www.fidelity.com! (Although the "Smart Money" part sounds suspiciously like some sort of syndicated column.)

Someday, I should calculate how much my HSA actually saved me in taxes, so I can decide whether it was truly worth the record-keeping hassles...

Purple_Crayon

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Re: HSA and health insurance premiums
« Reply #3 on: May 24, 2024, 12:47:02 PM »
10-year HSA industry worker here -- Yeah, you can't without penalties. In case you're curious, a lot of the larger players in the HSA industry are constantly lobbying (and have large forces of lobbyists) to specifically try to get the IRS to allow premium payments without restrictions, Medicare non-disqualification, and de-coupling of HSA and HDHPs -- anything to make more accounts and assets flow into the HSA ecosystem.

Some of them have even recently established their own PACs to pay for said lobbying efforts (such as HealthEquity's Purple PAC: https://www.fec.gov/data/committee/C00828996/?tab=spending&cycle=2024).

 

Wow, a phone plan for fifteen bucks!