Can I Use My HSA to Pay My Health Care Sharing Ministry Premiums?
So…you finally made it. You’ve been searching and searching because you want to know – “Can I use my HSA to pay my Health Care Share Ministry (HCSM) premiums?” To get the full answer, it’s important to understand HSA’s and Health Care Sharing Ministries. For a summary of HSA’s and Health Care Sharing Ministries, and how they relate to your question, keep reading. On the other hand, if you already have a handle on HSA’s and Health Care Sharing Ministries, and you’re low on time, feel free to skip to the end and get the simple answer fast
Your story may be similar to mine. In early 2019, my wife got bumped off of a state health insurance option, and so we went looking for health insurance coverage. Adding her to my employer-offered health insurance was financial suicide. Getting a policy through the health insurance exchange was no better. We had heard about the affordability of Health Care Sharing Ministries from various people, so we spent a good deal of time researching HCSM options.
After visiting websites, sending some e-mails, and making some phone calls, we found an option that worked best for our budget and our risk tolerance. We applied for coverage, but my wife had one question, “Can we use money from the HSA account to pay the monthly shares?” Even though I spend 8 hours a day working on either taxes or financial advisory services, I hadn’t run into this question before. What’s the first thing you do when you have a question? You Google it.
I thought the answer would be right at the top of the Google results. About 1 million individuals participate in Health Care Sharing Ministries and our family can’t be the first to ask this question. But, instead of finding an easy “Yes” or “No”, I clicked on 5 or 6 links that led to vague posts and articles. A couple of hours and a few IRS publications later, I found an answer that I could live with.
Although the answer isn’t word for word spelled out in tax law, the answer is based on the basic rules of an HSA and the basic workings of an HCSM.
Health Savings Accounts
HSA stands for “Health Savings Account”. And that’s exactly what it is. It’s a special savings account you can use to save for medical expenses. To fund an HSA, you must have high deductible health insurance policy (HDHP) coverage. If you have HDHP coverage, you can contribute up to $3,500 to an HAS in 2019 ($3,550 in 2020). If both you and a spouse, have HDHP coverage either separately or under family coverage, you can contribute as much as $7,000 in 2019 ($7,100 in 2020). If you are 55 or older anytime during the year, you can contribute an additional $1,000.
HSA’s have what has been nicknamed the “Triple Tax Advantage”. Funds deposited into the account are tax-deductible - they don’t count towards your taxable earnings for the year. When they come out of the account, they are tax-free.* Also, as a bonus, funds in the account can grow tax-free. Even if you lose or change your HDHP coverage, any funds that are in the HSA account remain tax-free indefinitely. Sounds pretty good, doesn’t it?
The only catch* is that you can only use the funds in the account for qualifying medical expenses. If you don’t, the non-qualified distribution is taxed at your income tax rate plus a 20% penalty. Qualifying medical expenses include emergency room visits, prescribed medicines, well-visit co-pays, and prescription glasses. Ineligible medical expenses include elective cosmetic surgery, over the counter medications, non-prescription vitamins, and prescription medication from other countries. For a more complete list of what qualifies and what doesn’t, you can view IRS Publication 502.
Health Care Sharing Ministries
One of the items that IRS Publication 502 explicitly lists as ineligible are health insurance premiums. You might be thinking, “Great, I’ve got my answer! That was easy!” Hold on, the answer isn’t that simple. There’s a curveball - Health Care Share Ministries (HCSM’s) are not insurance companies. HCSM’s are function differently than insurance companies and they have a different purpose.
As of this writing, there are currently 104 known and active HCSM’s in the U.S and only 7 of the 104 have open or modified open membership. Three of the most well-known open membership HCSM’s include Samaritan Ministries, Christian Healthcare Ministries, and Medi-Share. To be considered one of these organizations, the organization must be a non-insurance non-profit entity by which individuals who share “common ethical or religious beliefs [also] share medical expenses among members in accordance with those beliefs”. (http://housedocs.house.gov/energycommerce/ppacacon.pdf)
When you purchase a health insurance policy, you are establishing a contract with a for-profit company that details various conditions under which that company is responsible for paying your medical bills. In contrast, with an HCSM, it’s the members of the cost-sharing ministry who are paying the medical costs of other members, not the organization.
Because a Health Care Share Ministry is not a health insurance company and you don’t pay health insurance premiums, using an HSA to pay for HCSM shares is not expressly excluded. However, that doesn’t mean that health ministry shares are HSA eligible expenses.
HSA funds (baring a few minor exceptions) can only be used for medical expenses that are incurred by you, your spouse, or your dependents. If you need to get an updated glasses prescription, or if your son breaks his wrist, you can use HSA funds to pay those medical bills. However, you can’t use your HSA to help out your neighbor that cut his finger trimming the hedges and avoid the 20% penalty.
Again, HCSM’s are not insurance companies, and you’re not paying premiums, you are paying the medical expenses of others who have like ethical or religious beliefs. Although you’re cutting a check for medical expenses to pay for an x-ray for Dave in Boulder, Colorado, who got sick with pneumonia, those medical expenses aren’t incurred by your spouse or anyone listed as a dependent on your taxes.
I haven’t found any laws, precedents, or court cases that clearly state that HSA funds should not be used to pay HCSM premiums or shares. However, if you choose to use your HSA to cover your HCSM payments, because you won’t be using the funds to pay medical expenses for an “eligible individual”, you will most likely end up paying a 20% penalty on the distribution. I’m not a tax lawyer (so don’t sue me if I’m wrong), but in the end, I think you’ll end up retaining more of your money if you don’t use your HSA funds to pay your HCSM premiums or shares than if you do.
Remember, you can become financially confident and you can have a better investment experience.
-Tim Bacus, EA