I had two interesting questions asked to me the other day by an employer. He simply wanted to know, “Can an employer continue to contribute to a Health Savings Account if they’re on COBRA?” and “Can the employee use their Health Savings Account to pay for their COBRA Benefits.
The Simple Answer… Yes (With some guidelines of course).
To answer the first question.
There are no restrictions to an employee on COBRA that wants to continue contributing to their Health Savings Account. The employer is no longer responsible for their contribution but the employee can continue as they see fit.
http://www.ustreas.gov/offices/public-affairs/hsa/faq_using.shtml
Now to answer the second question.
As per the U.S. Treasury “You can only use your HSA to pay health insurance premiums if you are collecting Federal or State unemployment benefits, or you have COBRA continuation coverage through a former employer.”
Pretty Straight Forward… If you’re on unemployment or COBRA you can use your Health Savings Account to pay your premiums.
So this technically leaves open an opportunity for someone on COBRA to pay there health insurance 100% tax free.
Think about it, if your premium is $300 a month on COBRA.
You could contribute $300 to your Health Savings Account (Get the Tax Deduction) then use the Tax-Free Money to pay for your COBRA Benefits.
Not bad, for most people this is the only opportunity for you to Take Advantage of 100% Tax Free Money. Obviously talk to you accountant first because I am not one. But this poses an interesting option.
If you have any questions you can reach me at (631) 338- 9917.
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