Can a senior have a Health Savings Account (HSA) and still qualify for Medicaid? Are the funds in a Medicaid applicant’s HSA counted towards Medicaid’s asset limit? What about a HSA owned by a non-applicant spouse? If a HSA is counted for a non-applicant spouse, how can they fund their own care? These are important questions when a Medicaid applicant (or their non-applicant spouse) have a Health Savings Account.
Definition: Health Savings Account
A Health Savings Account is an individual savings account for persons with high-deductible health plans (HDHPs), who have no other health insurance, and who cannot be claimed as a dependent on another person’s tax return. HSAs help persons save for, and pay for, their health care costs until they reach their annual health plan deductible and their insurance coverage begins.
Dollars put into an HSA are not taxed when deposited, nor when interest is gained, nor when funds are withdrawn, given they are used to pay for “qualified health expenses” for oneself, their spouse, or a dependent, such as one’s child. Examples of qualified health expenses include physician appointments, hospitalization, labs, prescription drugs / over-the counter drugs, long-term care services, dental care, vision care, and hearing aids. Additionally, persons 65+ years old can use HSA funds to pay for Medicare and Medicare Advantage plan premiums.
While one does not pay tax for withdrawing funds for qualified medical expenses, if funds are withdrawn for a non-qualified expense and one is under 65 years old, there is a 20% penalty tax, plus the funds are taxed as income. After 65 years old, one can withdraw funds for expenses other than qualified medical expenses without penalty, but the funds will be taxed as income.
IRS Regulations: HSAs & Medicaid
Persons can only open and contribute to a Health Savings Account if they have no other health coverage (including Medicaid and Medicare). Per IRS regulations, Medicaid recipients, as well as Medicare Part A and / or Part B recipients, who have an existing Health Savings Account are ineligible to put money in the account. This is because “pre-tax dollars” are contributed, and a requirement to contribute “pre-tax dollars” is that the only health insurance one can have is a high-deductible health plan. However, Medicaid and Medicare recipients who have an HSA can still use existing HSA funds to pay for qualified health care expenses, including Medicare premiums.
If one is eligible for Medicaid (and / or Medicare), but not enrolled, they can open and fund a Health Savings Account, given they have a high-deductible health plan and meet the other requirements to have a HSA.
Medicaid’s Asset Limit
For a senior to be eligible for long-term care Medicaid, there are functional and financial requirements that must be met. While the functional requirement is not relevant to the discussion of Health Savings Accounts, the financial requirements, specifically the asset limit, is relevant. Medicaid’s income limit is not relevant, as distributions from an HSA, or in other words, a withdrawal of funds from one’s account, is not considered income. The following asset limits are accurate in 2025 for most states, but some states do deviate from the limits below. See state-specific asset limits.
1) Single Applicant
The asset limit for a single individual is generally $2,000, regardless of the Medicaid program for which one is applying.
2) Married (One Spouse is an Applicant)
Medicaid considers the assets of a married couple to be jointly owned, and therefore, the assets of a non-applicant spouse are counted when determining if their spouse is asset-eligible. For Regular Medicaid, a married couple is generally limited to $3,000 in assets. However, when one spouse applies for Nursing Home Medicaid or Home and Community Based Services (HCBS) via a Medicaid Waiver, the applicant spouse is generally limited to $2,000 in assets, and their non-applicant spouse can often keep up to $157,920 in assets as a Community Spouse Resource Allowance (CSRA). Therefore, if a non-applicant spouse’s HSA is counted towards the asset limit, it can likely be protected via the CSRA, allowing them to continue to fund their own health care.
3) Married (Both Spouses are Applicants)
Assets of a married couple are considered jointly owned by Medicaid, and when both spouses apply for Regular Medicaid, they are generally limited to $3,000 as a couple. However, when both spouses apply for Nursing Home Medicaid or HCBS via a Medicaid Waiver, each spouse is considered as an individual applicant and each spouse can generally have up to $2,000 in assets.
Medicaid & the Treatment of HSAs
States commonly do not count HSAs towards Medicaid’s asset limit, given account funds can only be used for qualified medical expenses. If a state does, however, count one’s HSA (and/or potentially a non-applicant spouse’s HSA) towards Medicaid’s asset limit, it is generally the amount that is available for withdrawal (minus any penalty for withdrawal) that is counted towards Medicaid’s asset limit. Depending on the amount, this could push one over Medicaid’s asset limit, and in turn, cause one to be ineligible for Medicaid due to “excess” assets.
There is a maximum annual HSA contribution amount set by the Internal Services Revenue (IRS), and this amount is over the asset limit in the majority of states. In 2025, the maximum annual contribution amount for an individual is $4,300, and for a family, it is $8,550. Persons who are 55+ years old, can contribute an additional $1,000 / year. While one can put funds into their own HSA, an employer or a loved can also contribute.
The IRS does not require one to spend a specific amount of their HSA annually, nor do they lose any funds if they are not spent at the end of the year. Any remaining funds are rolled over to the following year and do not impact the new year’s maximum annual contribution amount. Therefore, one could have a large balance in the Health Savings Account, impacting their asset-eligibility for Medicaid.
State-Specific Treatment of HSAs
Whether or not a Health Savings Account is counted towards Medicaid’s asset limit varies based on the state and if HSA funds can be used for expenses other than qualified medical expenses. While many states consider an HSA exempt (non-countable) if the use of funds is restricted to qualified medical expenses, there may be other requirements for one’s HSA to be exempt, such as providing verification that funds are restricted. Furthermore, some states may automatically count a Health Savings Account towards Medicaid’s asset limit. Below are some state-specific examples of how an HSA is treated.
1) Indiana does not count Health Savings Accounts towards Medicaid’s asset limit if account funds can only be used for qualified medical expenses. The Medicaid agency must verify the terms of the HSA to ensure that funds cannot be used for unqualified expenses.
2) Michigan Medicaid counts HSAs towards the asset limit. The value of one’s HSA is calculated by taking the amount that is available for withdrawal and subtracting any penalties from it. The state does not subtract taxes.
3) Minnesota usually counts HSAs since funds generally are available for unqualified expenses. If funds cannot be used for expenses other than qualified medical expenses, the HSA is exempt from Medicaid’s asset limit. Verification that this is the case must be provided.
4) Pennsylvania does not count a Health Savings Account if funds can only be used for qualified medical expenses. Verification that funds cannot be used for unqualified expenses must be provided. Without verification, one’s HSA will count towards Medicaid’s asset limit.
5) Virginia generally counts HSAs towards Medicaid’s asset limit, as persons can use HSA funds for expenses other than those related to their medical needs. There is an exception: An HSA is not a countable asset for persons who receive Medicaid via MEDICAID WORKS. This program allows disabled persons aged 16-64 years old to work, have a higher level of income, and still be eligible for Medicaid.
What if Medicaid Counts One’s HSA?
If one’s Health Savings Account is counted towards Medicaid’s asset limit, it could push one over the asset limit, resulting in Medicaid ineligibility. Therefore, one would have to reduce their countable assets to become asset-eligible, and hence, qualify for Medicaid. This could be done by cashing out one’s HSA and “spending down” the “excess” assets on non-countable assets, such as making home safety and accessibility modifications, paying off debt, or purchasing an Irrevocable Funeral Trust (IFT). When spending down one’s HSA, it is vital that one not gift any of the funds. Doing so would violate Medicaid’s Look-Back Period and would result in a Penalty Period of Medicaid ineligibility.
If one has a substantial amount of money in their HSA, it is recommended that one contact a Professional Medicaid Planner to discuss their specific situation. There are Medicaid planning strategies available to help one protect their assets from Medicaid, while still allowing them to become asset-eligible. This can be particularly important for a non-applicant spouse whose HSA is counted towards Medicaid’s asset limit, as Medicaid planning strategies can assist in protecting the funds to be used for their health care expenses. Professional Medicaid Planners are well educated in these strategies and can be extremely instrumental in ensuring state-specific rules are followed and the strategy is implemented correctly. Incorrect implementation and not following state-specific rules can lead to Medicaid denial. Find a Certified Medicaid Planner.