Ask the Experts: HSA for COBRA

Question: Can COBRA premiums be paid for with health saving account (HSA) funds?

Answer: Yes, insurance premiums for COBRA can be treated as qualified medical expenses. Qualified medical expenses can be paid with HSA funds and are not subject to taxes. If the HSA disbursement is for nonqualifying expenses, however, taxes apply. A 20 percent excise tax also applies for nonqualified expenses unless the accountholder is age 65 or older, or disabled.

Under HSA rules, most types of health insurance “premiums” (including coverage contributions for uninsured plans) do not count as tax-free qualified expenses. Only premiums in the following limited cases meet the definition of qualified medical expenses:

• Premiums for periods of continuation coverage required by federal or state law (e.g., COBRA);
• Premiums for coverage if unemployed and receiving unemployment compensation under federal or state law;
• Medicare premiums, if the individual became eligible for Medicare at age 65 or over; or
• Contributions for an employer-sponsored group retiree health plan, if age 65 or over.

Certain long-term care insurance premiums also may be qualified medical expenses. The provisions regarding long-term care are complex and employers should recommend that their employees review this matter with their personal tax advisor.

Note that premiums for Medicare Supplement policies (often referred to as Medigap) are not qualified medical expenses, regardless of age.

Get it All

ThinkHR customers have access to a wide range of expert benefits knowledge on Comply. Search a database of more than 1,000 questions and answers, get the facts about COBRA, or learn just about everything you need to know to be compliant with benefits administration.