Retiree health insurance premiums reimbursable from HSA?

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Pete12
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Retiree health insurance premiums reimbursable from HSA?

Post by Pete12 »

We are not quite there yet but I am trying to do some forward planning. My wife’s firm offers a retiree health plan to cover early retirees up until age 65 when they can go on Medicare. She currently is on the firm’s HDHP plan and we max her HSA contributions each year up to the family coverage limit. We don’t take withdrawals and are instead using the HSA as supplemental retirement savings.

Reading the rules on reimbursable expenses from HSAs it says that insurance premiums for “continuation coverage” such as COBRA can be reimbursed from a HSA. I am wondering if premiums for retiree medical count as continuation coverage for this purpose? It’s likely my wife would want to retire around 58 so we would need at least 7 years of medical coverage before we can get Medicare. The premiums are likely to be quite high so it would be nice if HSA funds can cover these. Probably would not qualify for ACA subsidies.

In case it’s relevant, my wife is a partner in the firm rather than an employee, we currently claim the self employed health insurance premium deduction on our taxes each year.

Thanks,
Pete
Davistax
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Joined: Fri Aug 28, 2015 9:24 pm

Re: Retiree health insurance premiums reimbursable from HSA?

Post by Davistax »

Pete12 wrote: Mon Jan 11, 2021 1:46 pm We are not quite there yet but I am trying to do some forward planning. My wife’s firm offers a retiree health plan to cover early retirees up until age 65 when they can go on Medicare. She currently is on the firm’s HDHP plan and we max her HSA contributions each year up to the family coverage limit. We don’t take withdrawals and are instead using the HSA as supplemental retirement savings.

Reading the rules on reimbursable expenses from HSAs it says that insurance premiums for “continuation coverage” such as COBRA can be reimbursed from a HSA. I am wondering if premiums for retiree medical count as continuation coverage for this purpose? It’s likely my wife would want to retire around 58 so we would need at least 7 years of medical coverage before we can get Medicare. The premiums are likely to be quite high so it would be nice if HSA funds can cover these. Probably would not qualify for ACA subsidies.

In case it’s relevant, my wife is a partner in the firm rather than an employee, we currently claim the self employed health insurance premium deduction on our taxes each year.

Thanks,
Pete
You may only reimburse for:
Qualified long-term care insurance, COBRA or State Continuation health care continuation coverage, health care coverage while an individual is receiving unemployment compensation & Medicare premiums.
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FIREchief
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Re: Retiree health insurance premiums reimbursable from HSA?

Post by FIREchief »

Davistax wrote: Mon Jan 11, 2021 11:09 pm
Pete12 wrote: Mon Jan 11, 2021 1:46 pm We are not quite there yet but I am trying to do some forward planning. My wife’s firm offers a retiree health plan to cover early retirees up until age 65 when they can go on Medicare. She currently is on the firm’s HDHP plan and we max her HSA contributions each year up to the family coverage limit. We don’t take withdrawals and are instead using the HSA as supplemental retirement savings.

Reading the rules on reimbursable expenses from HSAs it says that insurance premiums for “continuation coverage” such as COBRA can be reimbursed from a HSA. I am wondering if premiums for retiree medical count as continuation coverage for this purpose? It’s likely my wife would want to retire around 58 so we would need at least 7 years of medical coverage before we can get Medicare. The premiums are likely to be quite high so it would be nice if HSA funds can cover these. Probably would not qualify for ACA subsidies.

In case it’s relevant, my wife is a partner in the firm rather than an employee, we currently claim the self employed health insurance premium deduction on our taxes each year.

Thanks,
Pete
You may only reimburse for:
Qualified long-term care insurance, COBRA or State Continuation health care continuation coverage, health care coverage while an individual is receiving unemployment compensation & Medicare premiums.
I believe that you can add premiums for Medicare supplement plans after age 65, but not Medigap plans.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Pete12
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Re: Retiree health insurance premiums reimbursable from HSA?

Post by Pete12 »

Davistax wrote: Mon Jan 11, 2021 11:09 pm
Pete12 wrote: Mon Jan 11, 2021 1:46 pm We are not quite there yet but I am trying to do some forward planning. My wife’s firm offers a retiree health plan to cover early retirees up until age 65 when they can go on Medicare. She currently is on the firm’s HDHP plan and we max her HSA contributions each year up to the family coverage limit. We don’t take withdrawals and are instead using the HSA as supplemental retirement savings.

Reading the rules on reimbursable expenses from HSAs it says that insurance premiums for “continuation coverage” such as COBRA can be reimbursed from a HSA. I am wondering if premiums for retiree medical count as continuation coverage for this purpose? It’s likely my wife would want to retire around 58 so we would need at least 7 years of medical coverage before we can get Medicare. The premiums are likely to be quite high so it would be nice if HSA funds can cover these. Probably would not qualify for ACA subsidies.

In case it’s relevant, my wife is a partner in the firm rather than an employee, we currently claim the self employed health insurance premium deduction on our taxes each year.

Thanks,
Pete
You may only reimburse for:
Qualified long-term care insurance, COBRA or State Continuation health care continuation coverage, health care coverage while an individual is receiving unemployment compensation & Medicare premiums.
Thanks. From IRS pub 969 it says that you can reimburse “Health care continuation coverage (such as coverage under COBRA).” So this doesn’t seem to imply that only COBRA counts. I am wondering whether retiree medical is considered continuation coverage.
Spirit Rider
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Re: Retiree health insurance premiums reimbursable from HSA?

Post by Spirit Rider »

26 U.S. Code § 223(d)(2)(C)(i) a health plan during any period of continuation coverage required under any Federal law.

Continuation coverage is a temporary extension of previous group health coverage (i.e. COBRA). Retiree health insurance is not continuation coverage. It is only a qualified medical expenses when an HSA account owner is >= age 65.

IRS Notice 2004-2
  • Q-27. Are health insurance premiums qualified medical expenses?

    A-27. Generally, health insurance premiums are not qualified medical expenses except for the following: qualified long-term care insurance, COBRA health care continuation coverage, and health care coverage while an individual is receiving unemployment compensation. In addition*, for individuals over age 65, premiums for Medicare Part A or B, Medicare HMO, and the employee share of premiums for employer-sponsored health insurance, including premiums for employer sponsored retiree health insurance can be paid from an HSA. Premiums for Medigap policies are not qualified medical expenses*.
*This additional exception list is not exclusive.

After age 65, dental insurance premiums, a spouse's/dependent's health insurance premiums, etc... are HSA qualified medical expenses.
SuzBanyan
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Re: Retiree health insurance premiums reimbursable from HSA?

Post by SuzBanyan »

Davistax wrote: Mon Jan 11, 2021 11:09 pm
Thanks. From IRS pub 969 it says that you can reimburse “Health care continuation coverage (such as coverage under COBRA).” So this doesn’t seem to imply that only COBRA counts. I am wondering whether retiree medical is considered continuation coverage.
I think the “such as coverage under COBRA” is intended to include state law coverage, such as Cal-Cobra in California, which covers both smaller employers and a longer period of time.
Spirit Rider
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Re: Retiree health insurance premiums reimbursable from HSA?

Post by Spirit Rider »

SuzBanyan wrote: Tue Jan 12, 2021 9:57 am
Davistax wrote: Mon Jan 11, 2021 11:09 pm
Thanks. From IRS pub 969 it says that you can reimburse “Health care continuation coverage (such as coverage under COBRA).” So this doesn’t seem to imply that only COBRA counts. I am wondering whether retiree medical is considered continuation coverage.
I think the “such as coverage under COBRA” is intended to include state law coverage, such as Cal-Cobra in California, which covers both smaller employers and a longer period of time.
If you read my previous post you will see the relevant subsection of the tax code. Only federal continuation coverage is excepted from the prohibition on health insurance coverage. Cal-COBRA and other state extensions to COBRA are not HSA qualified medical expenses.

The phrase "such as" was used to allow for other federal continuation coverage. Like most IRS Publications, they are trying to give a reasonable context and explanation of the law. Not necessarily be an exhaustive treatment.
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Pete12
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Re: Retiree health insurance premiums reimbursable from HSA?

Post by Pete12 »

Spirit Rider wrote: Tue Jan 12, 2021 9:24 am 26 U.S. Code § 223(d)(2)(C)(i) a health plan during any period of continuation coverage required under any Federal law.

Continuation coverage is a temporary extension of previous group health coverage (i.e. COBRA). Retiree health insurance is not continuation coverage. It is only a qualified medical expenses when an HSA account owner is >= age 65.

IRS Notice 2004-2
  • Q-27. Are health insurance premiums qualified medical expenses?

    A-27. Generally, health insurance premiums are not qualified medical expenses except for the following: qualified long-term care insurance, COBRA health care continuation coverage, and health care coverage while an individual is receiving unemployment compensation. In addition*, for individuals over age 65, premiums for Medicare Part A or B, Medicare HMO, and the employee share of premiums for employer-sponsored health insurance, including premiums for employer sponsored retiree health insurance can be paid from an HSA. Premiums for Medigap policies are not qualified medical expenses*.
*This additional exception list is not exclusive.

After age 65, dental insurance premiums, a spouse's/dependent's health insurance premiums, etc... are HSA qualified medical expenses.
Thank you, this is super clear and just the info I was looking for. Too bad, but it is what it is!
VCC
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Joined: Thu Nov 21, 2019 4:19 pm

Re: Retiree health insurance premiums reimbursable from HSA?

Post by VCC »

If your wife's firm has an HRA or establishes an HRA that could be used to pay health insurance premiums in retirement.
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Pete12
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Re: Retiree health insurance premiums reimbursable from HSA?

Post by Pete12 »

VCC wrote: Tue Jan 12, 2021 5:57 pm If your wife's firm has an HRA or establishes an HRA that could be used to pay health insurance premiums in retirement.
No such luck unfortunately...
SuzBanyan
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Joined: Thu Jun 02, 2016 11:20 am

Re: Retiree health insurance premiums reimbursable from HSA?

Post by SuzBanyan »

Spirit Rider wrote: Tue Jan 12, 2021 10:16 am
SuzBanyan wrote: Tue Jan 12, 2021 9:57 am
Davistax wrote: Mon Jan 11, 2021 11:09 pm
Thanks. From IRS pub 969 it says that you can reimburse “Health care continuation coverage (such as coverage under COBRA).” So this doesn’t seem to imply that only COBRA counts. I am wondering whether retiree medical is considered continuation coverage.
I think the “such as coverage under COBRA” is intended to include state law coverage, such as Cal-Cobra in California, which covers both smaller employers and a longer period of time.
If you read my previous post you will see the relevant subsection of the tax code. Only federal continuation coverage is excepted from the prohibition on health insurance coverage. Cal-COBRA and other state extensions to COBRA are not HSA qualified medical expenses.

The phrase "such as" was used to allow for other federal continuation coverage. Like most IRS Publications, they are trying to give a reasonable context and explanation of the law. Not necessarily be an exhaustive treatment.
Interesting. I was on Cal-Cobra this year (company too small to qualify for COBRA). Based on this, I won’t add the health insurance cost I paid to expenses I could (but have not) reimbursed from my HSA.
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