Health Insurance Premiums through my pension

[MichaelS391685]

 I am 61 years old.  I retired in 2023 and receive a pension.  As part of that pension I am allowed to, and do, pay for the same health insurance that I was getting as an employee.  The difference is I must pay post tax instead of pretax.  Anyway, I have an HSA with substantial funds in it from when I was younger and had a low cost high deductible plan.  My current plan is not low cost high deductible.

 My question is, since I pay these premiums post tax, am I allowed to reimburse myself from my HSA?

[GailL1]

@MichaelS391685 

So what is the nature of this health insurance?

I assume that the premiums that are deducted from your pension covers the entire cost of the plan of coverage.  IOW, your employer is out of the picture and doesn’t cover any of the plan premiums.

What I mean by nature of the health plan is:

Is this coverage only interim like COBRA coverage?

Does it continue forever and works with Medicare when you are eligible, like Retiree Insurance?   OR

Does this plan end when you go onto Medicare, assuming premium-free Part A?

I am also assuming that there are no further contributions to the HSA since you no longer have HDHP.

IRS.gov- Publication 969 - Health Savings Account 

IRS Publication 969 covers the reimbursement elements from an HSA 

Go down to the subject of “Distributions from an HSA”

It says “ When you pay medical expenses during the year that aren’t reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA.“

Now you have to determine IF these health insurance premiums being deducted from your pension are deemed to be QUALIFIED medical expenses according to the IRS.

The Publication says:  

“You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. You don’t have to make withdrawals from your HSA each year.”

Insurance premiums.

You can’t treat insurance premiums as qualified medical expenses unless the premiums are for any of the following.

1. Long-term care insurance.

2. Health care continuation coverage (such as coverage under COBRA).

3. Health care coverage while receiving unemployment compensation under federal or state law.

4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

Since you are less than 65 years old, and the way you describe this policy premium deducted from your pension ONLY #2 might apply.  

This IRS.gov publication may also give you some added info on whether or not these premiums deducted from your pension are qualified health deduction and if they can be distributed from your HSA.

IRS.gov- Publication 502 - Medical and Dental Expenses 

I will say that if you decide to reimburse yourself for these premiums being deducted from your pension - keep good records and it would be easier if the expense (premiums) and the distribution from the HSA match exactly.  

[MichaelS391685]

  That's where it gets confusing, the IRS says "such as COBRA."  It is not cobra.  The IRS does not go on to describe any other "continuation of coverage" nor does it touch on retirement specifically, just "loss of job." Since I pay the same rate as a retiree that I did as an employee, i must assume that my former employer pays a portion of the total, I don't see the details, I only see what I pay.  The only difference now, from when I worked is my premiums are paid "after taxes" instead of pre-tax.  Unfortunately, reading the IRS guidelines is as clear as mud for my situation.

[MichaelS391685]

   In addition, this coverage is only available to me, according to my former employer "until age 64" which I understand to mean until I am able to get medicare.  This makes me think it is a "continuation of coverage " such as (but NOT) COBRA.

 I am considering reimbursing myself for the 12 premiums I have paid in 2024 and then moving forward reimbursing myself monthly, I of course would do the exact amounts I paid.

[Tonster521]

@MichaelS391685 Based on the info you provided, it appears that your employer's insurance benefit plan includes past employees who qualify for an immediate pension. It appears that insurance benefit coverage is available until Medicare eligibility which is generally age 65. I am not sure of the logic to age 64. Your Summary Plan Description (SPD) will provide clarification. At any rate, employees are eligible to participate in a Section 125 Plan. Such Plans may be premium only or cafeteria plans. Retirees are not eligible for Section 125 per the Internal Revenue Code (IRC). So, if you elect to participate in your employer's insurance benefit plan, you need to contribute on an after tax basis which is still an outstanding deal. If you were not eligible to participate on the Plan, Cobra coverage is available and  would cost you 102% of the actual premium which, my guess, would exceed $1,000 per month (depending on medical, dental, vision, etc.). I am sure you are contributing less. ACA coverage (Obama Care) would cost in the $1,000 per month range unless you elect less coverage. So, consider Gail1 and DirkB's advice and save some tax dollars.  If you have more info on your employer's plan, I will gladly read/review such info. 

[DirkB349973]

I would not do it. The penalties are too severe. Why not use your HSA for the pending Part B, Part D, medigap and other medical expenses you will incur under Medicare. If not that, invest it for additional retirement income. If the answer was simply, "Yes. Reimburse yourself", I think Gail would have said that. But she's extremely accurate and also careful. You should be too. @MichaelS391685