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 Tax free distributions can be taken from the HSA for the qualified medical expenses of the person covered by the HDHP, the spouse ( even if not covered ) of the individual and any dependent ( even if not covered ) of the individual. 12 The HSA account can also be used to pay previous year ' s qualified expenses subject to the condition that those expenses were incurred after the HSA was set up. The individual must preserve the receipts for expenses met from the HSA as they may be needed to prove that the withdrawals from the HSA were made for qualified medical expenses and not otherwise used. Also the individual may have to produce the receipts before the insurance company to prove that the deductible limit was met. If a withdrawal is made for unqualified medical expenses, then the amount withdrawn is considered taxable ( it is added to the individuals income ) and is also subject to an additional 10 percent penalty. Normally the money also cannot be used for paying medical insurance premiums. However, in certain circumstances, exceptions are allowed.