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Health Savings Accounts (HSAs) May Help Cover Rising Senior Care Expenses

November 20, 2023
An HSA helped this grandmother pay for senior care

Find out how a Health Savings Account may help cover senior care expenses

As seniors require more medical equipment, dental work, and other care, expenses mount rapidly for families. Most caregivers worry about covering these rising senior care bills. Health Savings Accounts (HSAs) provide one option many families overlook. Though total long-term care costs often eclipse HSA balances, these accounts still help. Even modest HSA savings can make a real difference for strained budgets. Evaluating all potential assets, like overlooked HSAs, is crucial when planning to cover senior care expenses.

How Health Savings Accounts Work

A Health Savings Account (HSA) pairs with a high deductible health insurance plan. Unlike Flexible Spending Accounts (FSAs), HSA funds roll over yearly without expiring. That allows account growth over time through contributions and investments. Individuals can contribute up to annual IRS limits. Some employers even contribute to encourage employee participation. These features make HSAs a tax-advantaged way to save for healthcare expenses, including senior care.

The Benefits of Opening a Health Savings Account Early

Health Savings Accounts aren’t for everyone. Those on Medicare can’t participate. But for workers with years until retirement, HSAs offer key advantages. 

Opening an HSA well before needing senior care lets the account grow. Pre-tax payroll deductions reduce taxable income. Account holders can use funds anytime on eligible medical costs tax-free. Interest earned is also tax-free. HSAs even stay with account holders if they switch employers.

Starting early maximizes contributions and investment earnings thanks to years of tax-advantaged compound growth. That can make HSAs an essential healthcare savings tool for retirement.

Grow Your Health Savings Account Through Investing

Health Savings Accounts offer investment options beyond just savings accounts. Account holders can invest HSA funds in securities for potential tax-free growth over time.

This little-used feature enhances HSAs as retirement health care savings tools. Investing works best for those not needing regular withdrawals. Targeting age 65 or later to tap investments allows time for compounding.

Conservative investing within HSAs can help build the account well beyond contributions alone. But those using funds regularly for medical costs may want to limit investing.

HSAs Cover More Senior Care Expenses Than You May Think

Health Savings Accounts can pay for diverse qualified medical expenses tax-free. That includes long-term care costs for account holders or dependents.

Many senior care services and products become eligible, like:

  • Home modifications
  • Mobility equipment
  • Service animals
  • Copays and prescriptions
  • Dental and vision
  • In-home caregivers

The IRS updates qualified expenses annually. Stick to this list to avoid taxes and penalties on HSA withdrawals. Non-medical withdrawals face a 20% penalty and get taxed as income. The penalty is waived after age 65, but taxes still apply.

Knowing all the options makes maximizing tax-free HSA use easier.

Tapping Your Health Savings Account for Long-Term Care

Insurance premiums usually don’t qualify for HSA tax-free withdrawals. But long-term care insurance is an exception. HSAs can pay those premiums tax-free. This opens the door to covering assisted living, memory care, skilled nursing, and other senior facilities. The long-term care policy pays the facility bills using your HSA premium dollars.

Some long-term care services may also qualify if you have a doctor’s letter validating medical necessity. With proper documentation, HSAs provide tax-advantaged funding for hands-on elder care costs.

Between insurance premiums and qualified care expenses, Health Savings Accounts can be a critical piece in managing long-term care costs.

Health Savings Accounts for Elderly Dependents

Health Savings Accounts can also cover medical costs for claimed dependents tax-free. This includes elderly parents and other relatives claimed on your taxes. Even if your dependent doesn’t have their own HSA, you can use your account funds for their qualified medical expenses. That provides another avenue to pay for senior care costs.

For non-dependents like parents, there are still options. A spouse can authorize an HSA for joint use. Those with power of attorney over elderly parents can utilize the parents’ HSA. Consulting the IRS for guidelines helps maximize this benefit.

With proper eligibility and authorization, HSAs give families more ways to pay elder care bills tax-free. Use this IRS Resource Guide to learn more.

Who can enroll in an HSA?

There are four criteria an individual must meet to be eligible for an HSA:

  • Be enrolled in an HDHP
  • Have no other insurance coverage
  • Cannot be claimed as a dependent by anyone
  • Cannot be enrolled in Medicare

Open a Health Savings Account Early to Maximize Growth

Experts recommend opening a Health Savings Account as soon as you’re eligible. Accounts benefit from more years of tax-advantaged compound growth. The IRS caps annual HSA contributions. For 2023, it’s $3,850 for individuals and $7,300 for families. Nearing retirement, contribution limits hinder rapid growth.

You also can’t contribute once enrolled in Medicare. To maximize growth, start your HSA well before retiring and needing senior care. The earlier you open a Health Savings Account, the more value it can provide. Start ASAP for maximum tax-free savings.

Check if Family Members Have HSAs

When parents or loved ones need senior care, talk to them about their finances. Ask if they have an HSA. HSAs can help pay medical bills tax-free, including some long-term care costs. Even a small HSA balance provides extra funds for expensive elder care. Those who opened accounts years ago likely have more savings built up.

Don’t assume your family lacks HSAs. Their tax-free savings could help cover care costs. Review all financial options to ease the expense burden. Finding every available resource makes senior care more manageable.

Contact us at 832-371-6600 for a free consultation to share the challenges you’re facing, and to learn how our personalized home care services can help you.

Home Matters Caregiving proudly serves the Houston Metro area providing care for seniors wherever they call home.

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About the author

Tyler Williams

As an Area Owner and Operator of a Home Matters Caregiving franchise, I am committed to ensuring exceptional outcomes for our valued clients and caregivers. My passion for elevating our service quality is matched by my role as a blogger and social media manager for the franchise, where I share insights, updates, and foster community engagement. Prior to senior care, I used my strategic communication and brand development skills as the Marketing Director of a regional bank. My diverse experience supports my commitment to excellence and innovation in both healthcare and digital communication.
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