In Retirement, What Healthcare Costs Can Be Paid from an HSA Account?
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
As people approach retirement, or enter retirement, healthcare costs often become one of the largest expenses in a financial plan. The good news is that Health Savings Accounts (HSAs) can be a powerful tool to help cover many of these costs using tax-free dollars. However, not every healthcare expense qualifies, so it’s important to understand both what can and cannot be paid from an HSA in retirement.
In this article, we’ll cover:
Which Medicare premiums are HSA-eligible
Whether COBRA premiums qualify
Dental, vision, and hearing expenses
Out-of-pocket medical costs
Medical equipment and prescriptions
Expenses that are not HSA-eligible
HSA withdrawal rules before and after age 65
Frequently asked HSA questions in retirement
Medicare Premiums
One of the most common uses for HSA funds in retirement is paying for Medicare premiums. HSA distributions can be used tax-free for:
Medicare Part B premiums
Medicare Part D premiums
Medicare Advantage (Part C) premiums
However, Medigap (Medicare Supplement) premiums are not considered a qualified HSA expense, even though Medicare Advantage plans are. This is a commonly misunderstood rule and an important one for retirees to be aware of when planning healthcare costs.
COBRA Coverage
If you retire before age 65 or leave an employer and elect COBRA coverage, those health insurance premiums can be paid from an HSA. This can be especially helpful for early retirees who need to bridge the gap before Medicare begins.
Dental, Vision, and Hearing Expenses
Dental, vision, and hearing costs are some of the most common out-of-pocket healthcare expenses in retirement — especially since many retirees no longer have employer coverage for these services.
HSA-eligible expenses include:
Dental cleanings, fillings, crowns, dentures, braces, and X-rays
Vision exams, eyeglasses, contact lenses, and LASIK surgery
Hearing aids and hearing aid batteries
Hearing aids alone can cost several thousand dollars, making the HSA a valuable tax-free resource for these expenses.
Out-of-Pocket Medical Expenses
Many routine healthcare costs in retirement are HSA-eligible, including:
Doctor visits
Specialist visits
Hospital services
Co-pays
Deductibles
Coinsurance
Surgery costs
Lab work and imaging
These are often the “everyday” medical expenses retirees experience each year.
Medical Equipment
If medical equipment is needed later in retirement, many of these expenses qualify for HSA distributions, including:
Walkers
Wheelchairs
Blood pressure monitors
Crutches
CPAP machines
Glucose monitors
Prescription Medications
Prescription drugs that are prescribed by a doctor are qualified HSA expenses.
However, over-the-counter medications typically do NOT qualify unless they are prescribed by a physician.
Expenses That Are NOT HSA-Eligible
Some healthcare-related expenses are not considered qualified medical expenses. These typically include:
Gym memberships
Nutritional supplements
Cosmetic procedures
Teeth whitening
General health items not prescribed by a doctor
Even though these may improve health, they are not considered qualified medical expenses under HSA rules.
Why HSAs Are So Powerful for Retirement
HSAs are one of the most tax-advantaged accounts available because they offer:
Tax-deductible contributions
Tax-free growth
Tax-free withdrawals for qualified medical expenses
Because healthcare costs are often highest in retirement, many individuals choose to pay for medical expenses out-of-pocket during their working years and allow their HSA to grow, using it later in retirement when healthcare costs increase.
HSA Withdrawal Rules: Before and After Age 65
It’s also important to understand the rules around HSA withdrawals:
Before age 65
Non-qualified withdrawals = taxable income + 20% penalty
After age 65
Non-qualified withdrawals = taxable income only (no penalty)
Works similar to a Traditional IRA if not used for healthcare
This provides additional flexibility later in retirement.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs)
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Can HSA funds be used for Medicare premiums?Yes, for Medicare Part B, Part D, and Medicare Advantage premiums.
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Can HSA funds be used for Medigap premiums?No, Medigap premiums are not considered a qualified expense.
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Can I use my HSA for dental expenses in retirement?Yes, most dental expenses qualify.
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Are vision expenses HSA-eligible?Yes, including exams, glasses, contacts, and LASIK.
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Are hearing aids covered by an HSA?Yes, including hearing aid batteries.
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Can I use my HSA for COBRA premiums?Yes, COBRA premiums are a qualified expense.
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Are prescription drugs HSA-eligible?Yes, if prescribed by a doctor.
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Are over-the-counter medications HSA-eligible?Typically no, unless prescribed by a physician.
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What happens if I use HSA money for non-medical expenses before 65?You will owe income tax and a 20% penalty.
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What happens if I use HSA money for non-medical expenses after 65?You will owe income tax, but no penalty.
