Heaslth insurance premiums are generally not qualified medical expenses for HSA purposes. However, there are four specific exceptions where premiums are considered qualified expenses:
- COBRA premiums
- Premiums for a long-term care contract
- Medical premiums
- Premiums paid while the taxpayer is receiving unemployment benefits.
If none of these exceptions are applicable, then the health insurance premiums are not qualified expenses and you should not withdraw funds from your HSA to pay them.
What happens if you have already withdrawn funds to pay for an unqualified insurance premium?
If your HSA plan allows for repayment due to a mistake made with reasonable cause, make the repayment immediately. Reasonable cause includes a reasonable, but incorrect assumption that your premiums are a qualified expense. The amount MUST be repaid no later than April 15 of the year following the year of the mistake. If these steps are taken the amount repaid is not included on FORM 1099-SA and is not subject to tax or penalty.
If your plan does not allow for repayment because of a mistake due to reasonable cause, you may still repay the amount under the general 60-day rollover rule. But only one 60-day rollover is allowed each year, so pay attention to your payments.
If you have mistakenly made unqualified premium payments with HSA funds and have already passed the 60-day rollover period on a plan that doesn't allow for repayment be prepared to pay taxes and penalties come April 15th.