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Using Health Savings Accounts to Pay Long-Term Care Insurance Premiums

Posted by Vincent Benitez on Wed, Jan 30, 2019 @ 09:01 AM

using-health-savings-accounts-to-pay-long-term-care-insuranceLong-term care is expensive, which is why there’s long-term care insurance. But there’s a catch – paying the premiums for long-term care insurance can also strain a person’s finances. That’s the bad news; now for the good news. If your clients have a Health Savings Account (HSA), they can use the funds to pay for long-term care insurance premiums. Even better, they can do this tax-free.  

How Much Does Long-Term Care Cost?

According to the U.S. Department of Health and Human Services, 70 percent of people turning 65 today will need long-term care. Women need care for an average of 3.7 years, and men need care for an average of 2.2 years, and that care doesn’t come cheap. For example, one year in an assisted living facility costs an average of $43,536.

Given this, it’s not hard to see why long-term care insurance premiums tend to be on the pricy side. Rates depend on many factors, including age and health, but they can easily run around $2,000 or more a year.

Compared to the cost of long-term care, this doesn’t seem like such a bad deal – but it could still be high enough to lead to price objections. Before your clients decline this coverage, show them a better way to pay for it with HSAs.

How Do HSAs Work?

HSAs are special savings accounts that help people cover the out-of-pocket costs associated with high-deductible health plans (HDHP). This arrangement has become increasingly common over the last decade. According to the CDC, only 4.2 percent of people had an HDHP paired with an HSA in 2007. By 2017, that figure had gone up to 18.9 percent, or nearly one out of five individuals.

HSAs are popular for many reasons:

  • The funds in HSAs never expire.
  • HSAs offer three tax advantages: the contributions are tax deductible (or made pretax), the interest grows tax-free, and even withdrawals can be tax free.
  • HSA funds can be used for a wide range of qualified medical expenses – including long-term care.

How Much Can Be Used?

In order to see the full tax benefits of HSAs, it’s important to follow the limits when withdrawing funds for a tax-qualified long-term care insurance policy. How much you can withdraw tax-free in 2019 depends on your age.

  • 40 or younger: You can withdraw up to $420.
  • 41 to 50: You can withdraw up to $790.
  • 51 to 60: You can withdraw up to $1,580.
  • 61 to 70: You can withdraw up to $4,220.
  • 71 or older: You can withdraw up to $5,270.

In a couple, if both people have long-term care insurance policies, they can both make tax-free withdrawals up to the age-based maximum. 

In many cases, this could cover the full cost of long-term care insurance premiums. Even if it doesn’t cover every penny, it will certainly make the out-of-pocket costs significantly more affordable.

Contact me to learn more.

Topics: long-term care insurance, health savings accounts