Can You Keep an HSA Account Without Health Insurance?

Health Savings Accounts (HSAs) are a popular way to save money for healthcare expenses tax-free. HSAs are typically paired with high-deductible health plans (HDHPs) that have lower premiums but higher deductibles. A key question that often comes up is whether you can keep contributing to an HSA if you lose your HDHP coverage.

The short answer is yes, you can keep your HSA account open and the funds will remain yours. However, you cannot make new HSA contributions without active HDHP enrollment. There are some exceptions like COBRA and other coverage gaps that allow contributions for a limited time.

Below is an in-depth look at the rules on contributing to an HSA without health insurance.

HSA Eligibility Requirements

Here are the basic eligibility requirements to open and contribute to an HSA set by the IRS:

• Must be enrolled in a qualified high-deductible health plan (HDHP)
• Cannot be covered under any other non-HDHP medical plan
• Cannot be enrolled in Medicare
• Cannot be claimed as a dependent on another person’s tax return

Additionally, individuals are not HSA-eligible if they receive care from the Veterans Health Administration or Indian Health Services (IHS) within the previous 3 months. Some preventive care can be received from the VA or IHS without impacting eligibility.

The HDHP coverage is the key requirement to make new HSA contributions. Unless you meet this requirement, you cannot put additional funds into an HSA.

What Happens If You Lose HDHP Coverage?

There are a few scenarios where you may find yourself without HDHP coverage but with an existing HSA account:

• Losing job-based health insurance due to termination, resignation, or retirement
• Transitioning to a non-HDHP plan such as a PPO or HMO
• Enrolling in Medicare which is not considered an HDHP
• Turning 26 and getting removed from a parent’s health plan

In these situations, your HSA account remains open because you own it. The funds stay in your account and remain available tax-free for qualified medical expenses. Any interest, dividends, or investment gains in the account continue to grow tax-deferred as well.

However, you can no longer contribute to the HSA once HDHP enrollment ends. Any contributions made while ineligible would be considered “excess contributions” subject to tax penalties until withdrawn.

The only way to make new HSA contributions is to re-enroll in an HDHP and meet all the eligibility criteria again.

Limited Contribution Opportunities Without HDHP

In some cases, you may qualify for a limited window to make HSA contributions without an active HDHP:

COBRA Coverage Gap

If you lost employer insurance but choose to extend it under COBRA, you typically can contribute to an HSA for that COBRA coverage period. This assumes the COBRA plan is an eligible HDHP.

Contributions are limited to the months of actual COBRA coverage, which could be 18 or 36 months depending on the situation.

Beginning or Ending HDHP Mid-Year

If your HDHP coverage starts or ends mid-year, you can make a full year’s HSA contribution up to the IRS limits. This is allowed as long as you have HDHP coverage for at least one day of the year and remain eligible for the following 12 months.

If the 12-month eligibility requirement is not satisfied, excess contributions would need to be withdrawn and taxed.

Between Job Transitions

When transitioning between jobs, you may qualify for an HSA contribution window if you had HDHP coverage under the old employer and then obtain new HDHP coverage right away.

This 63-day window between HDHP plans allows a tax-free HSA contribution. You cannot go more than 63 days without HDHP coverage to use this exception.

Maintaining an HSA Account Long-Term

While you cannot make new contributions without an HDHP, existing HSA funds will remain yours long-term regardless of future insurance coverage. Key advantages of maintaining the HSA over many years include:

• Tax-deferred growth – Any investment earnings or interest on HSA balances accumulate tax-free even after you exit the HDHP.

• Tax-free withdrawals – Distributions used for qualified medical expenses avoid being taxed at any age.

• Retirement income – After age 65, withdrawals can be taken for any purpose without penalty. Just normal income taxes apply.

• Pass on funds – Any remaining account balance at death passes to beneficiaries tax-free.

• No time limit – Unlike Flexible Spending Accounts, HSA balances have no expiration and can grow over your lifetime.

If you decide to close the HSA after losing HDHP coverage, make sure to spend down the account or do a direct rollover to another HSA to avoid taxes and penalties.

As long as you keep the account open, the funds will remain tax-advantaged and available to reimburse healthcare costs if the need arises. Even better, it may continue to grow into a nice supplement for retirement.

Strategies to Use an HSA Without HDHP Coverage

While new contributions are limited without an HDHP, people often want to maintain access to the tax benefits of their HSA funds. Here are a few strategies to leverage your HSA if you find yourself without high-deductible plan coverage:

Pay Medical Expenses Out-of-Pocket

Rather than use your HSA to reimburse healthcare costs, consider paying smaller and routine expenses out-of-pocket after losing HDHP coverage. This preserves the HSA balance for future needs.

Just keep receipts in case you ever need to withdraw HSA funds for those expenses down the road. Qualified purchases from any time period can be reimbursed in the future.

Shop for Low-Cost HDHP Coverage

Look into finding the most affordable HDHP coverage possible, such as low-premium “catastrophic” plans. This maintains eligibility to contribute to your HSA.

HDHPs with the lowest premium costs often have very high deductibles. But that might be manageable if you are primarily using the plan to qualify for HSA contributions rather than medical coverage.

Utilize an LEX HCFSA

A Limited Expense Healthcare Flexible Spending Account (LEX HCFSA) can complement an HSA account. The LEX HCFSA allows pre-tax savings like an HSA, but ONLY for dental and vision expenses.

Having both accounts lets you maximize tax-advantaged savings while reserving the HSA for future healthcare unknowns.

Get Preventive Care from VA/IHS Facilities

If eligible for Veterans Health Administration (VA) or Indian Health Services (IHS) benefits, you can utilize them for no-cost preventive care and avoid impacting HSA eligibility. Just beware that non-preventive medical services trigger the 3-month waiting period before contributing to an HSA.

Wait Until Age 65

If you are close to Medicare eligibility at age 65, you could simply pay healthcare expenses with taxable funds until enrolling in Medicare. At 65, you can withdraw HSA funds for non-medical uses without penalty.

For most healthcare, Medicare becomes the primary coverage at age 65 and limits HSA utility. Keeping the HSA intact for retirement income becomes more practical.

Weigh HSA vs. FSA

A Flexible Spending Account (FSA) offers some tax advantages and funds that do not expire when you leave an employer like an HSA. Weigh the pros and cons of an HSA vs. FSA based on your specific situation. You cannot contribute to both in the same year, with a limited exception for a LEX HCFSA only covering vision and dental expenses.

The Bottom Line

Losing HDHP coverage clearly limits your ability to make further HSA contributions. But you can keep the account itself and use the valuable tax-advantaged funds whenever the need arises.

If you want to proactively save more for healthcare, explore options like finding bare-bones HDHP policies, utilizing LEX HCFSAs, or limiting use of VA/IHS benefits. With proper planning, an HSA can provide benefits long after your high deductible coverage ends.