Long-term care is a major expense that most seniors will need at some point. Unfortunately, many people don’t know how to pay for long-term care. One option available to many seniors is using an HSA to pay for long-term care or to cover long-term care insurance premiums. This is a tax-advantaged strategy that can help make care more affordable.
Avoiding a Long-term Care Crisis
Yale University says 70% of 65-year-olds will need long-term care before they die, but the majority of adults have done little to nothing to plan for the expense.
Part of the problem lies in misconceptions surrounding Medicare coverage. According to KFF, 45% of adults age 65 and older think Medicare covers long-term care. Unfortunately, these seniors may be in for a rude awakening. Most long-term care is non-medical in nature, so it is not covered by Medicare. Medicaid can cover long-term care, but only after individuals meet their state’s income and resource limits.
The situation is dire enough that many experts are warning of a looming long-term care crisis. However, there are solutions, including HSAs and long-term care insurance.
What Is an HSA?
An HSA is a Health Savings Account. According to HealthCare.gov, it’s a special type of savings account that lets you save money on a pre-tax basis and use the untaxed dollars to pay for qualified medical expenses. HSAs can also earn interest, and the earnings are not taxable. These tax advantages make HSAs a practical way to pay for qualified medical expenses.
Although HSAs are somewhat similar to Flexible Spending Accounts, or FSAs, there are key differences. HSA funds do not expire, so once you have an account, you don’t have to worry about losing money you don’t use immediately. HSAs are also portable, so you can keep them when you change jobs or retire. However, you can’t contribute to your HSA unless you’re currently enrolled in a high-deductible health plan (HDHP). Medicare is not considered an HDHP, so Medicare enrollees can’t contribute to an HSA, but they can keep an HSA that they already have and use the funds.
Contributing to an HSA
According to the IRS, you must meet the following requirements to qualify for an HSA contribution:
- You are covered under a high deductible health plan on the first day of the month.
- You have no other health coverage. (Certain types of insurance may be permitted, including benefits for certain liabilities, coverage for a specific disease or illness and coverage that pays a fixed amount per day of hospitalization, as well as disability insurance, accident insurance, dental insurance, vision insurance, long-term care insurance and telehealth benefits. See IRS Publication 969 for more details.)
- You aren’t enrolled in Medicare.
- You can’t be claimed as a dependent on someone else’s tax return.
The person who owns the HSA can contribute to the account up to the annual limit. The person’s employer can also make contributions, and so can any family member or other persons who wants to contribute.
For calendar year 2025, the contribution limit for someone with self-only HDHP coverage is $4,300, and the contribution limit for someone with family HDHP coverage is $8,550. Individuals who are 55 or older at the end of the tax year can contribute an additional $1,000 per year.
What Are Qualified Medical Expenses?
One of the biggest advantages to HSAs is the tax benefits. HSAs are funded with pre-tax money, and the distributions can also be tax free. Watch out, though – using an HSA for non-eligible expenses can result in hefty tax penalties. The IRS says that funds that are withdrawn for anything other than qualified medical expenses are subject to income tax and a 20% tax penalty. However, the tax penalty does not apply to people who are age 65 or older.
In general, medical and dental expenses can be deducted, but there are some exceptions. For example, diet food is not deductible. Cosmetic surgery is not deductible, either, unless it’s necessitated by a congenital abnormality, an injury or a disfiguring disease. See IRS Publication 502 for a list of medical and dental expenses that are generally allowable.
Can HSAs Be Used to Pay for Long-Term Care?
If you have an HSA, you can use the HSA funds to pay for long-term care in some situations.
Long-term care refers to assistance with daily activities of life, such as eating and bathing. According to the Administration for Community Living, research has shown that most people turning 65 will need long-term care at some point.
Because long-term care is often non-medical in nature, it is not typically covered by Medicare or other types of health insurance. Care can be provided at home or in a nursing home or other long-term care facility – and it’s expensive. According to Genworth, the average monthly cost is $6,292 for a home health aide, $5,350 for an assisted living facility and $8,669 for a semi-private room in a nursing home.
HSAs can be used to cover some of these expenses. According to IRS Publication 502, long-term care services are eligible expenses if they are required by a chronically ill individual and provided as part of a plan or care prescribed by a licensed health care practitioner. Maintenance and personal care services are eligible if the primary purpose is to provide a chronically ill individual with assistance that is needed due to the person’s disabilities.
IRS Publication 502 also states that nursing services are typically considered allowed medical expenses. To qualify, the services can be provided in the individual’s home or in a facility, and the services do not need to be provided by a nurse. However, the services do have to relate to caring for the individual’s condition, such as giving medication or bathing or grooming the patient. If the worker also does household chores, this amount can’t be included.
Can HSAs Be Used to Pay for LTCI Premiums?
HSAs can be used to pay for long-term care insurance premiums.
According to the IRS, most insurance premiums are not considered qualified medical expenses, but there are some exceptions. HSA funds can be used for long-term care insurance, as well as health care continuation coverage and Medicare and other health insurance if you’re 65 or older.
However, not all long-term care insurance policies are eligible. To qualify, the policy must be guaranteed renewable and meet certain other requirements and limitations regarding the use of refunds, cash surrender value and reimbursements.
Additionally, there are limits to the amount that can be deducted for long-term care insurance premiums. In 2024, the following amounts are the maximum eligible deductions for long-term care insurance premiums, based on age, according to the AALTCI:
- 40 or younger: $470
- 41 to 50: $880
- 51 to 60: $1,760
- 61 to 70: $4,710
- 71 or older: $5,880
Because most seniors will need long-term care, and because care is so expensive, it’s important to plan for this cost. Using an HSA to pay for long-term care insurance is a solid option, and one that many seniors might not know about. This is a good opportunity for insurance brokers. Download our LTC-HSA Client Handout as well as the LTCI Broker Opportunity Kit.