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Long Term Care and HSAs

Vicky Warren · July 24, 2019 · 4 min read


Have you been thinking about long-term care? Have you been wondering how to pay for it?

If you’ve got an HSA, here’s some good news. You can use your HSA funds to help pay for long-term care insurance.

Let’s explore how your HSA can help.

What is Long Term Care?

As we age, we may need help with the activities of daily life (ADLs) like bathing, dressing, eating, toileting, transferring from the bed to a chair, and other day-to-day tasks.

Long-term care (LTC) provides these services, but often with a steep price tag.  According to the Fidelity Retiree Health Care Cost Estimate, in 2021, a 65-year-old couple can expect to spend as much as $300,000 on healthcare expenses during retirement. Health care costs come from many sources, such as premiums, prescription costs, tests, procedures, and more. The reality is that many older Americans will need long-term care at some point. 

Most health and disability insurance plans don’t cover long-term care, but long-term care insurance does. 

What Does Long Term Care Insurance Cover?

The term “long-term care” encompasses several situations. Maybe you need help at home a couple hours a day, or, perhaps, a loved one is ready to move to an assisted living facility full time.

Most long-term care insurance policies cover the following:

  • Adult day care services

  • Hospice care

  • Respite care

  • Assisted living facilities (as known as residential care facilities or alternate care facilities)

  • Alzheimer’s special care facilities

  • Nursing homes

In addition, many comprehensive policies cover the following services in the home setting:

  • Skilled nursing care

  • Occupational, speech, physical, and rehabilitation therapy

  • Assistance with personal care, like bathing and dressing

As with all insurance, every policy is different, so be sure to talk with a qualified agent to find the best fit for you.

Types of Long Term Care Insurance

Traditional long-term care insurance and hybrid insurance plans are the two most common types.

Traditional long-term care insurance plans (LTCI) offer the most direct and affordable way to pay for long-term care expenses.

Hybrid long-term care insurance plans combine two types of insurance plans into one policy. These plans combine life insurance or a qualifying annuity with a long-term care insurance rider (typically similar to traditional long-term care insurance).

Why Consider Getting Long Term Care Insurance

At this point you may be thinking, why do I need to worry about this? I thought the government programs pay for this? The truth is, Medicare doesn’t cover very much when it comes to long-term care. Medicaid will cover long-term expenses; however, doctors aren’t accepting as many Medicaid patients now, making healthcare access more difficult for Medicaid recipients.

Long-term care provides peace of mind. Knowing you’ll likely eventually need long- term care, having a way to help cover some of the costs should help ease the burden. 

How an HSA Can Help With Long-Term Care Insurance

HSAs are savings accounts that you contribute pre-tax money to pay for qualified medical expenses. You must be enrolled in a qualified High Deductible Health Plan (HDHP) and cannot have secondary health insurance, like a spouse’s health plan, that offers traditional coverage.

The money you contribute to your HSA rolls over year to year, allowing you to build a nest egg for medical expenses.

You can use your tax-free HSA money to pay your long-term-care insurance plan premiums.

The amount you can withdraw annually is based on your age by the end of the year. The rates for 2019 are as follows: 

  • 40 or younger – $420

  • 41 to 50 – $790

  • 51 to 60 – $1580

  • 61 to 70 – $4,220

  • 71 or older – $5, 270

If you and your spouse both have long-term care insurance, you can each use HSA money to help pay your premiums.

To use your HSA funds, the long-term care policy must only cover long-term care services. The policy must pay out if you need help with at least two ADL’s or have cognitive impairment.

Many traditional long-term care insurance plans will meet the qualifications. However, if you aren’t sure, ask your insurer if your policy is “tax-qualified.” To note, life insurance policies that also cover long-term care (hybrid policies) won’t qualify.

If you’ve been considering getting long-term care insurance, but aren’t sure how to pay for it, using HSA funds may provide the financial boost you need to make it work.

Vicky Warren

Vicky Warren

Vicky Warren, once a nurse, now a freelance healthcare writer and social media coach.

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Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.



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