Unfortunately, this is correct. Since you used the last-month rule in 2024***, you had to maintain HDHP coverage for all of 2024, or have your contributions recalculated for 2024. Death or Disability are explicitly the only two reasons specified to avoid this issue.
You listed that you had Self-only coverage for all of 2024, while you implied that your husband had Family coverage in 2024 (did he in 2024?). Did TurboTax tell you on your 2024 tax return if you had excess HSA contributions?
By keeping the HDHP coverage in 2025 via Cobra, you were doing the right thing; however, when you went on Medicaid, that caused the "failure to maintain HDHP coverage".
Sadly, the rules for HSAs are far more complex than one would think, and it is difficult to figure out in advance what you should be doing. That's why I want to know if you had excess contributions in 2024.
*** The last-month rule allows you to use the full annual HSA contribution limit if you have HDHP coverage on December 1, 20XX, no matter how few months you had coverage during the year. It's a great benefit to those just starting on an HDHP plan. However, it does require that you "maintain" HDHP coverage for the full following year.
Please note that failure to maintain HDHP coverage does not necessarily cause a penalty in the previous year. What happens is that TurboTax checks to see if your 2024 contributions were in excess of the HSA contribution limit for that year, without the last-month rule. For many taxpayers, if they had HDHP coverage for the entire year, they would not have excess contributions for the HDHP coverage that they actually had, so no penalty.
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