How to Use Your HSA After a Layoff in 2026
Your HSA might be one of the biggest assets at your disposal post-layoff.
If you weren’t a part of a high-deductible plan at your job and didn’t have the opportunity to invest in an HSA, then maybe you don’t want to hear that first line. But if you were and have been diligently saving (tax-free, of course), then you may have done yourself a huge favor in this time of need.
Unlike an FSA, where you are on the clock to spend it all before the end of the year, the HSA is yours forever. Even if you don’t end up needing this account during your time of unemployment, that money can just sit until retirement and be used for medical expenses then. And you will never be taxed on any of it.
But where an HSA truly shines is in all the ways it can be used during a layoff that other accounts can’t. From helping pay your insurance deductible, to buying necessary items through TrueMed, to covering counseling costs during this transition, the HSA does it all.
Now the question is: what things specifically can I use this account for? Some things are very clear (COBRA) and others less so (TrueMed), but this guide will walk you through getting an idea of where you can use your HSA funds to get you through this unemployment rough patch.
First, the Good News: Your HSA Belongs to You
An HSA is not like a flexible spending account (FSA). It is not tied to your employer, and there is no use-it-or-lose-it deadline. When you leave a job, whether you quit or were laid off, the account and every dollar in it go with you.
Three things stay true no matter what happens to your job:
• The money is yours permanently. Your former employer has no claim on it, and the balance rolls over year after year with no expiration.
• You can spend it at any time. HSA funds cover qualified medical expenses regardless of what health insurance you have now. You do not need to be on a high-deductible plan (or any plan) to spend from an HSA you already funded.
• It keeps its tax advantage. Withdrawals for qualified medical expenses are tax-free, exactly as they were when you were employed.
The one thing that changes is your ability to add new money, which we will get to. For now, the point is simple: if you have an HSA balance, you have a tax-free medical fund that a layoff cannot take away.
The One Rule That Changes Everything: Premiums
Most people assume an HSA can only be used for doctor visits and prescriptions, not for insurance premiums. That assumption is mostly correct, and the exceptions are exactly where a laid-off worker benefits.
The general rule, straight from IRS Publication 969, is that you cannot use HSA funds to pay insurance premiums. But there are four specific exceptions:
1. COBRA continuation coverage
2. Health coverage while you are receiving unemployment compensation
3. Long-term care insurance (up to an age-based annual limit)
4. Medicare and certain other coverage once you turn 65 (Medigap does not count)
Two of those four, COBRA and unemployment coverage, are built for precisely the situation you are in. The table below sums up what your HSA can and cannot pay.
Premium type | HSA-eligible? | Notes |
COBRA continuation coverage | Yes | Includes spouse and dependents on the plan |
Any health plan while receiving unemployment | Yes | Only while you are actually collecting unemployment |
Marketplace (ACA) plan, not on unemployment | No | Pay with after-tax cash |
Employer premiums taken pre-tax from a paycheck | No | Already pre-tax, so do not double-dip |
Long-term care insurance | Yes | Up to an age-based annual limit set by the IRS |
Medicare and similar coverage at 65 or older | Yes | Medigap (Medicare supplement) does not count |
Using Your HSA to Pay for COBRA
This is the headline use, and one of the most underused rules in the tax code.
When you lose your job, you are usually offered COBRA, the option to keep your old employer’s health plan for a limited time. The catch is that you now pay the full premium yourself (the portion you paid plus the portion your employer used to cover), plus an administrative fee of up to 2%. That can be a brutal number, often several hundred to a couple thousand dollars a month.
Here is the relief: COBRA premiums are explicitly a qualified medical expense. You can pay them straight from your HSA, tax-free, with no penalty. The dollars go from your HSA to the premium without ever touching your regular cash.
A few practical details:
• You can also use your HSA to pay COBRA premiums for your spouse and dependents, as long as they are covered under the continuation plan.
• The payments have to be for coverage periods after your COBRA coverage begins, not retroactively before you elected it.
• Keep records: your COBRA election notice, the premium statements, and proof of payment. If the IRS ever asks, the receipt is your proof.
If cash is tight, paying COBRA from the HSA is often the smartest sequencing move you can make, because it lets you keep your regular cash for rent and groceries while your health coverage is funded with money set aside for exactly this.
The Broader Exception Almost Nobody Uses: Unemployment
COBRA gets all the attention, but the second exception is arguably more powerful, and far fewer people know about it.
While you are receiving unemployment compensation (under any federal or state program), you can use your HSA to pay the premiums for almost any health plan, not just COBRA. That includes a plan you buy on the Marketplace through HealthCare.gov, or a private plan you buy directly from an insurer.
Why this matters: COBRA is frequently more expensive than a comparable Marketplace plan. If you are collecting unemployment and you find a cheaper Marketplace plan, you can pay those premiums from your HSA just as tax-free as you could COBRA premiums. For a lot of people, that combination (a cheaper plan plus HSA dollars to pay for it) is the best of both worlds.
One thing to remember: this exception only applies during the stretch when you are actually receiving unemployment checks. The moment those benefits stop, so does your ability to pay ordinary premiums from the HSA tax-free. If your claim ends or you are between benefit periods, that door closes, and only the other exceptions (like COBRA) remain open.
Green flag If you are on unemployment and a Marketplace plan is cheaper than COBRA, you can usually pay the Marketplace premium from your HSA and pocket the difference. Compare the two before you default to COBRA. |
What Else Your HSA Covers When Money Is Tight
Premiums are the big one, but do not forget the everyday medical costs that do not stop just because your income did. Every one of these can come out of your HSA, tax-free, no matter what insurance you are on:
• Doctor visits, urgent care, and copays
• Prescriptions
• Dental care (cleanings, fillings, and more) and vision (eye exams, glasses, contacts)
• Mental health care, including therapy
• Medical equipment and supplies
• Over-the-counter medications (pain relievers, cold and allergy medicine, and so on), which no longer require a prescription after a 2020 law change
• Menstrual care products, also made eligible by that same law change
Two more things worth knowing when you are supporting a household on reduced income:
• You can use your HSA for your spouse’s and dependents’ qualified expenses, even if they are not on your health plan.
• Starting in 2026, direct primary care memberships may also be HSA-eligible, which can be a budget-friendly way to keep a doctor relationship while between jobs. Confirm the current rules with your HSA administrator.
The takeaway: while the paycheck is paused, try to route unavoidable medical costs through the HSA and preserve your regular cash for the bills the HSA cannot legally cover.
A Newer Option: Stretching HSA Dollars with TrueMed
There is a newer way to put HSA (and FSA) dollars toward products that are not on the traditional qualified list, and it is worth understanding, along with its catch.
TrueMed is a payments and compliance platform that connects your pre-tax HSA or FSA funds to certain health-related purchases that normally would not qualify on their own. It partners with brands you may already recognize across fitness equipment, sleep and recovery gear, supplements, certain supportive footwear, and even at-home growing systems like Gardyn, along with thousands of others.
How it works, in four steps:
1. Shop at a TrueMed partner brand and choose the HSA/FSA option (powered by TrueMed) at checkout.
2. Complete a short health survey. An independent, licensed clinician reviews it, with no in-person visit.
3. If you qualify, TrueMed issues a Letter of Medical Necessity (LMN), often within a few hours.
4. Pay with your HSA/FSA card, or pay with a regular card and submit for reimbursement later.
Because you are spending pre-tax money, qualified customers save an average of about 30% (roughly your tax rate) compared with paying out of pocket.
The Honest Catch (Do Not Skip This)
This is a real, legal mechanism (not a loophole) but it is also not a blank check to buy anything you want. The whole thing rests on IRS Section 213(d), which only covers expenses that treat, mitigate, or prevent a specific medical condition. The IRS explicitly excludes anything “merely beneficial to general health.” That has real consequences:
• The diagnosis drives eligibility, not the product. The same pair of shoes can qualify for someone with plantar fasciitis and not qualify for someone buying them because they look nice. A licensed clinician has to find a genuine medical reason for you, and the same item can qualify for one person and not another.
• Nothing is guaranteed. Eligibility is not automatic, and reimbursement is not guaranteed. Your HSA/FSA administrator has the final say.
• Keep the LMN and your itemized receipts. If you cannot substantiate the expense in an audit, it becomes a non-qualified withdrawal: income tax plus a 20% penalty if you are under 65, the same as pulling the money out for rent.
• Know the climate. The IRS has signaled it believes HSA/FSA coverage for food and exercise should be rare, and the aggressive end of this market is drawing scrutiny. Use it for things you genuinely need, and keep your documentation clean.
For the just-laid-off reader, one honest word on priorities: when cash is tight, this is usually not where your limited HSA balance should go. Premiums (COBRA or coverage while on unemployment) and real medical bills come first. TrueMed is more useful when you have some breathing room, or in one specific layoff situation: if you have a health FSA you are about to forfeit when you leave (many are use-it-or-lose-it), spending it down on something you genuinely need can beat losing it entirely. Check your FSA’s post-termination rules first, because they vary.
Bonus Tip A TrueMed letter of medical necessity is usually product- and merchant-specific and valid for about 12 months. If you are going to use it, make your qualifying purchases within that window and file the paperwork the same day, so it does not get lost when you need it at tax time. |
Can You Still Put Money In? The Contribution Question
This is where the “your account is yours” has a limit to it. You keep and spend the HSA freely, but adding new money has a requirement: you can only contribute while you are covered by a qualifying high-deductible health plan (HDHP) and are otherwise eligible.
So after a layoff:
• If you elect COBRA and your old plan was an HDHP, you can generally keep contributing to your HSA while on COBRA.
• If you move to a plan that is not an HDHP (a non-HDHP COBRA option, a spouse’s plan, or a standard Marketplace plan), you can no longer make new contributions, though you can still spend what is already there.
For 2026, if you are still eligible, the contribution limits are $4,400 for self-only coverage and $8,750 for family coverage, plus an extra $1,000 if you are 55 or older. Realistically, most people who have just lost income are focused on spending the HSA wisely, not topping it off. But if you land a new job with an HDHP, you can start contributing again right away.
The Reimburse-Yourself-Later Trick
Here is a lesser-known feature that turns your HSA into a flexible cash-flow tool exactly when you need one.
There is no deadline to reimburse yourself for a qualified medical expense. As long as the expense happened after you opened your HSA, you can pay it out of pocket today, keep the receipt, and withdraw that same amount from your HSA tax-free whenever you want, months or even years later.
Why this is useful after a layoff:
• If your HSA is invested and you would rather not sell during a market dip, you can pay a medical bill from cash now and reimburse yourself later once things recover.
• If you want to keep the HSA balance intact as a last-resort buffer, you can hold the receipts and pull the money only if you truly need it.
• If you paid for medical expenses after opening the account but before the layoff and never reimbursed yourself, and you still have the receipts, you can start that reimbursement now to put cash in your pocket when you need it.
The whole strategy runs on documentation. Save every receipt somewhere you will still be able to find it in ten years, because the receipt is the only proof that the withdrawal was qualified. One hard rule: an expense from before you established the HSA never qualifies, no matter when you pay it.
Mistakes That Get Expensive
The HSA is generous, but a few errors can cost you real money in taxes and penalties. Avoid these:
• Paying ordinary premiums without being on unemployment. Paying for a regular individual or Marketplace plan from your HSA when you are not receiving unemployment is not qualified. It triggers income tax and, if you are under 65, a 20% penalty. This is the single most common mistake.
• Double-dipping. Do not pay a premium from the HSA that was already taken out of a paycheck pre-tax, and do not reimburse yourself for a bill another plan already covered.
• Treating it like a regular savings account. Pulling HSA money for rent, groceries, or credit card bills is a non-qualified withdrawal. Before age 65, that means income tax plus a 20% penalty on the amount. After 65, the penalty disappears and only income tax applies, but before 65, treat the balance as medical-only money.
• Not keeping receipts. Without documentation, you cannot prove a withdrawal was qualified if the IRS asks. Keep the paperwork.
Red flag Using HSA money for non-medical expenses before 65 costs you income tax plus a 20% penalty. If you are desperate enough to consider it, talk to a tax professional first, because there are almost always cheaper places to pull from. |
FAQ: “Can I Use My HSA For…?”
Can I use my HSA to pay COBRA premiums?
Yes. COBRA premiums are a qualified medical expense, so you can pay them from your HSA tax-free and penalty-free, including COBRA for your spouse and dependents on the plan.
Can I use my HSA to pay for a Marketplace (ACA) plan?
Only while you are receiving unemployment compensation. During that period, HSA funds can cover almost any health plan’s premiums, including a Marketplace plan. Once unemployment benefits stop, ordinary Marketplace premiums are no longer HSA-eligible.
Can I use my HSA to pay my regular monthly health insurance premiums?
Generally no. Outside the four exceptions (COBRA, coverage while on unemployment, long-term care, and Medicare or similar at 65 or older), premiums are not qualified.
Can I still contribute to my HSA after being laid off?
Only if you are covered by a qualifying high-deductible health plan and are otherwise eligible. If your COBRA plan is an HDHP, you generally can. If you switch to a non-HDHP, you can spend but not contribute.
Can I use my HSA for my spouse’s or kids’ medical bills?
Yes, for qualified expenses of your spouse and dependents, even if they are not on your insurance.
Can I use my HSA for dental and vision?
Yes. Cleanings, fillings, eye exams, glasses, and contacts are all qualified.
Can I use my HSA for over-the-counter medicine and menstrual products?
Yes. Since a 2020 law change, over-the-counter medications no longer need a prescription, and menstrual care products are eligible too.
Can I use my HSA for therapy or mental health care?
Yes. Mental health treatment, including therapy, is a qualified medical expense.
Does my HSA money expire if I do not use it?
No. HSA funds roll over indefinitely and stay yours for life.
Can I reimburse myself for a medical bill I already paid out of pocket?
Yes, with no deadline, as long as the expense occurred after you opened the HSA and you keep the receipt.
What happens if I use my HSA for rent or other non-medical costs?
Before age 65, you owe income tax on that amount plus a 20% penalty. After 65, only income tax applies.
All Hail the HSA
This article might be on the longer side, but that is because I truly love the financial strategy around having an HSA. As someone who is (relatively) healthy, I always choose a high-deductible plan in order to take advantage of such a versatile tax-free tool.
A layoff makes every account you own suddenly matter, and the HSA is one that too many people forget is even there. If you have a balance, you are holding a tax-free fund that can carry some of your scariest expenses (starting with your health coverage) without touching the cash you need for everything else.
This week, three quick moves:
1. Check your HSA balance. Log in and find out what you are actually working with.
2. Compare your coverage options. If you are choosing insurance, price COBRA against a Marketplace plan, and remember that if you are on unemployment, your HSA can pay either one.
3. Route medical costs through the HSA. For any unavoidable medical expense, use HSA dollars first and keep your regular cash for the bills the HSA cannot cover.
The account is not a windfall, and it will not replace an emergency fund or unemployment benefits. But used well, it takes one of the biggest fears of a layoff (losing health coverage you cannot afford to replace) and makes it a little more manageable.
A Quick Disclaimer
This article is for general information and is not tax or financial advice. HSA rules come from the IRS and the details can change, so confirm your specific situation against IRS Publication 969 or with a qualified tax professional before you act.
Sources
IRS Publication 969 (Health Savings Accounts and Other Tax-Favored Health Plans); IRS Revenue Procedure 2025-19 (2026 HSA contribution limits); the CARES Act (over-the-counter and menstrual product eligibility, effective January 1, 2020).
About the author Corporate Kate has spent nearly 15 years inside corporate tech, managing large teams and making the hiring decisions most job seekers never get to see. She holds a bachelor’s degree in Finance and writes about layoffs, careers, and money. |
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