Health Savings Accounts (HSAs) can be a flexible and tax-advantaged way to pay for health care costs. You can build up your HSA with pre-tax contributions and use it for qualified health expenses. But, once you enroll in Medicare, you can no longer make contributions or receive contributions from your employer into your HSA account.
If you have qualified employer-sponsored health insurance, you may want to delay Medicare enrollment past age 65. It’s especially important to understand how getting Medicare coverage impacts your HSA. Typically, if your employer offers a medical plan with creditable prescription drug coverage, there is no penalty for delaying Medicare enrollment.
Can you have an HSA with Medicare?
Beginning the month that you enroll in Medicare, you can no longer contribute to a Health Savings Account. This is because having Medicare coverage disqualifies you from making HSA contributions. To be eligible to contribute to an HSA, you must not have any other health coverage (such as Medicare) that pays out before you meet your high-deductible health plan’s deductible.
However, you can still use the funds that are already in your HSA to pay for qualified medical expenses, including Medicare premiums, deductibles, copayments and certain out-of-pocket costs.
What happens to your HSA once you enroll in Medicare?
The most important thing to remember about your HSA when enrolling in Medicare is that once you enroll in any part of Medicare, you’re no longer eligible to make HSA contributions or to receive HSA contributions from your employer. This includes Medicare Part A or Medicare Part B; enrolling in either one will prevent you from contributing further to your HSA.
If you’re turning 65 and planning to continue working, you may consider enrolling in Medicare Part A since it is premium-free. However, it’s important to remember that once you enroll in Part A, you can no longer make or receive any further pre-tax contributions to your HSA.
If you are receiving Social Security benefits, enrolling in Medicare Part A is mandatory, so you must stop all HSA contributions.
Can you contribute to HSAs after 65?
You can continue contributing to an HSA after turning 65 if you are not enrolled in Medicare. To be eligible to make HSA contributions, you must be covered by a high-deductible health plan (HDHP) and have no other disqualifying health coverage (like Medicare).
If you delay Medicare enrollment and remain on an HDHP, you can keep contributing to your HSA. However, once you enroll in Medicare, even if it’s only in Part A, you must stop making HSA contributions.
What if I have retroactive Medicare coverage?
If you enroll in Medicare Part A after you’re eligible (i.e., you enroll after age 65 and six months), this coverage may be retroactive for up to six months from the date you apply or from the date you become eligible, depending on your circumstances.
It’s important to consider this potential retroactivity when planning your HSA contributions – if this backdating applies to you, you should plan on stopping your HSA contributions around six months before enrolling in Medicare. If you have questions, speak with your health insurance advisor.
The Good News: You Can Keep Using Your HSA Funds
Even after you enroll in Medicare and stop HSA contributions, you are still able to access HSA funds tax-free for qualified medical expenses. You can use your HSA money to pay for certain Medicare costs, such as Medicare Part B, Part D and Medicare Advantage (Part C) plan premiums, deductibles, copays and coinsurance. It’s important to note that HSA funds cannot be used to pay for Medicare Supplemental premiums.
Consider Your Options Carefully
Once you enroll in Medicare, neither you nor your employer can continue to make contributions into your HSA account. However, you are still able to use existing HSA funds for qualified medical expenses, including some Medicare costs.
Knowing this, it’s important to think carefully about your Medicare enrollment decisions once you become eligible. If you have questions about Medicare or need assistance securing health coverage, Higginbotham can help. Request a personalized health insurance quote to get in touch with one of our Medicare specialists.
