The one genuinely useful thing here
The other exceptions worth knowing: premiums while receiving unemployment compensation, Medicare premiums once you are 65, and qualified long-term care insurance. A marketplace plan premium is not on that list — so if you switch from COBRA to a marketplace plan, this particular advantage stops.
Your HSA is yours. It does not belong to the employer, it does not terminate when the job does, and you keep it regardless of what you do about coverage.
What changes about contributing
Spending from an HSA and contributing to one follow different rules, and the second one trips people up.
- You can only contribute while covered by a qualifying high-deductible health plan. If your COBRA plan is one, you can keep contributing. If it is not, you cannot — though you can still spend what is already there.
- Nobody is matching you now. Employer contributions stop with employment.
- Contributions are prorated for the months you were eligible, so a mid-year change alters your annual limit. Over-contributing carries a penalty, so it is worth checking rather than assuming.
- Stop contributing before Medicare starts. Once you are enrolled in any part of Medicare you can no longer contribute, and Part A can be backdated up to six months — which can retroactively make contributions excess. More on the Medicare interaction.
How to think about it while unemployed
An HSA balance during a period without income is unusually flexible: it covers COBRA premiums tax-free, it covers ordinary medical costs tax-free, and it is not means-tested for Medicaid or marketplace subsidy purposes the way a withdrawal from a retirement account would be.
That last point is worth sitting with. Drawing from a traditional IRA to pay for coverage increases your income and can reduce your premium tax credit. Spending from an HSA does neither. For anyone managing income around the 400% cliff, that difference is larger than it looks.
Common questions
Can I use my HSA to pay COBRA premiums?
Yes. Health insurance premiums are normally not a qualified HSA expense, but COBRA is one of the explicit exceptions — along with premiums while receiving unemployment compensation, Medicare premiums, and qualified long-term care insurance.
Can I use an HSA for marketplace plan premiums?
Generally no. Marketplace premiums are not a qualified expense unless you are receiving unemployment compensation. This is one thing that changes when you move from COBRA to a marketplace plan.
Can I still contribute to my HSA on COBRA?
Only if your COBRA plan is a qualifying high-deductible health plan. If it is, you can contribute. If not, you can still spend the balance but cannot add to it.
What happens to my HSA when I lose my job?
Nothing — it is yours. It does not belong to the employer and does not terminate with employment. Only employer contributions stop.
Do I have to stop contributing at 65?
Once enrolled in any part of Medicare, yes. And Part A can be backdated up to six months, which can retroactively turn contributions into excess contributions subject to penalty. Stop and check the dates before you enroll.
Does spending from an HSA affect my subsidy?
No, and this is genuinely useful. HSA withdrawals for qualified expenses do not count toward the income used for premium tax credits — unlike a withdrawal from a traditional IRA, which does.
Is my HSA counted for Medicaid eligibility?
HSA withdrawals for qualified medical expenses are not counted as income for the modified adjusted gross income calculation used by the marketplace and Medicaid. Asset rules vary by state and category, so confirm for your situation.
Where can I get help working this out?
The interaction between an HSA, COBRA and your subsidy is one of the fiddlier parts of this. Calling (866) 821-1808 connects you with a licensed agency that can look at it alongside your other options.
Talk it through with a licensed agent
Which option is right depends on your state, your income and which doctors you need to keep. A licensed agent can walk through it with you in about eight minutes.
Free to call, no obligation, and we never ask you for payment. CobraScout is paid by the agency that answers, not by you. TTY 711.
Sources
- Internal Revenue Service, Publication 969 — Health Savings Accounts
- U.S. Department of Labor, FAQs on COBRA Continuation Health Coverage for Workers
- Medicare.gov, When to sign up for Part A and Part B