HSAs – Good for More Than Just Paying Medical Expenses

September 9, 2018

Your employees can enjoy the benefit of paying their long-term-care insurance premiums tax-free — if you offer a Health Savings Account (HSA).

Funded with employees’ pre-tax dollars, HSAs are not subject to taxes when withdrawn for qualified medical expenses.

Employers can only offer HSAs if the HSA account is tied to a high deductible health insurance plan (HDHP). An HDHP is a policy that requires the policy owner to pay a minimum deductible in 2018 of $1,350 for a single person or $2,700 for a family policy. Once the deductible is met, the policy owner and the insurance company share in paying health expenses until reaching a maximum out-of-pocket amount. Employees who have HSAs can pay the deductibles from the account.

Qualified long-term care premiums are considered a medical expense. Life insurance policies that provide a long-term-care benefit are not eligible for the tax-savings benefit.

The amount an employee can withdraw annually to pay long-term care premiums depends on their age at the end of the year.

For instance, in 2018, age:

  • 40 or younger can withdraw up to $420 tax-free

  • 41 to 50 can withdraw $780

  • 51 to 60 can withdraw $1,560

  • 61 to 70 can withdraw $4,160

  • 71 or older can withdraw $5,200


Fortunately, your employees have another avenue to pay for long-term care insurance premiums with tax-free funds without an HSA. They may qualify for the medical-expense deduction when filing their tax forms. Employees must itemize their expenses, and their eligible medical expenses are deductible only to the extent that they exceed 7.5% of their adjusted gross income. Some states also offer additional tax breaks for qualified long-term-care insurance premiums.

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About Alera Group 

Alera Group is an independent, national insurance and wealth services firm with more than $1.1 billion in annual revenue, offering comprehensive employee benefits, property and casualty insurance, retirement plan services and wealth services solutions to clients nationwide. By working collaboratively across specialties and geographies, Alera Group’s team of more than 4,000 professionals in more than 180 locations provides creative, competitive services that help ensure a client’s business and personal success. For more information, visit https://aleragroup.com/ or follow us on LinkedIn.