The high cost of long-term care can tap into your income, drain your savings, and affect your quality of life. Finding tax-free ways to pay for coverage can help you plan for your future while easing expenses now.

Don’t forget you can use HSA funds to pay a portion of your Long Term Care insurance (LTCI) premiums. Learn more about HSAs, including how they work and ways to save.

Am I Eligible for an HSA?

You are eligible to participate in a Health Savings Account (HSA) when you enroll in a high-deductible health plan (HDHP) and meet other requirements.

HDHPs typically have a higher annual deductible and out-of-pocket maximums with a lower monthly premium. You must first satisfy the annual deductible before the plan pays for a portion of covered services, known as coinsurance.

What Is an HSA?

An HSA is a special savings account to pay for qualified health care expenses. HDHP medical plans are paired with an HSA and allow participants to contribute pre-tax dollars from their paycheck.

Some companies may make employer contributions to your HSA. This is free money to use toward doctor visits, prescriptions, and even a portion of your LTCI premiums.

HSA funds roll over year to year and can be taken with you if you retire or leave the company. If you are no longer enrolled in an HDHP, you cannot make personal contributions to your account.

How Much Can You Contribute Each Year?

If you’re enrolled in an HDHP, you can make personal contributions up to the annual maximum. In 2017, the contribution limits are $3,400 for individuals or $6,750 for families.

If you are age 55 or older, you can make catch-up contributions up to $1,000 each year. Personal contributions and employer funding cannot exceed annual limits.

How to Save with an HSA

When you make personal contributions via payroll deduction, funds are contributed to your account pre-tax. This lowers your taxable income and allows you to set aside money for health care expenses without being taxed on the income.

If you’re planning for retirement, you may want to contribute up to the annual maximum to help pay for health care expenses and LTCI premiums.

Use Your HSA to Pay for LTCI Premiums

Pay for a portion of your LTCI premiums by using your HSA debit card or by writing a check. Make sure you have enough funds in your account and do not exceed the annual LTCI premium maximum based on your age.

Attained Age During Taxable Year 2017 LTCI Premium Maximum
40 or under $410
40-50 $770
50-60 $1,530
60-70 $4,090
70+ $5,110

Source: IRS Revenue Procedure 2016-55 (for 2017 limits)

Consider Your Options During Your Next Open Enrollment

If you don’t have an HSA, consider your options during your company’s next Open Enrollment period. If your employer offers an HDHP with HSA medical plan, you may consider enrolling to help save for health care expenses and LTCI premiums.

Keep in mind, HDHP medical plans have higher out-of-pocket expenses before the plan pays for coverage. It’s important to consider your health needs and the needs of your family before enrolling in a plan. Review your plan summaries and consider the cost of your health care needs and premiums before making your decision.

Curious to learn more? Review LTC Consumer’s 2018 LTCI Tax Guide for more ways to save. Or chat with an LTC specialist who can answer all of your questions.

LTC Consumer is an independent, free online service to help consumers understand what long term care insurance is, how it works, and how to evaluate coverage options. Our mission is to provide an educational, no-pressure resource for learning about long term care planning, with the opportunity to speak with specialists who can help them.