How do HSA's Work with Medicare?

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Let’s start with some definitions.

An HSA is a Health Savings Account. If you’re reading this post, you likely know that an HSA allows individuals to contribute pre-tax dollars to cover medical costs in a high-deductible health plan. You must have a high-deductible health plan in order to have an HSA and be compliant with IRS rules. Money contributed to an HSA is not taxed as long as it is used to pay for qualified medical expenses. An HSA can either be managed by an employer or by a bank, credit union, or insurance company.

Medicare Part A is hospital insurance and covers inpatient hospital care, limited home health services, skilled nursing facility care, and hospice care. If you’re already collecting retirement benefits from the Social Security Administration or the Railroad Retirement Board, you are automatically eligible for Medicare Part A at age 65. You may also be eligible before age 65 if you have certain disabilities. The Part A deductible in 2019 is $1364, which does not qualify as a high deductible.

Medicare Part B is medical insurance and covers covers medical services and supplies such as outpatient care, preventive services, ambulance services, and medical equipment. You must enroll in Medicare Part B and pay a small premium. The deductible for Part B in 2019 is $185 and doesn’t qualify as a high deductible.

Can I Contribute to an HSA and Be Enrolled in Medicare Parts A and B?

No. If you are enrolled in Medicare Part A and/or B, you can no longer contribute your pre-tax dollars to your HSA. It is a tax violation to have both an HSA and Medicare at the same time.

What if I Want to Work Past Age 65 and Keep Contributing to my HSA?

If you want to continue working past age 65, there are ways to continue contributing to an HSA by opting out of Medicare Part A and not enrolling in Part B.

How do I opt out of Medicare Part A if I’m automatically enrolled?

If you are eligible and work for a company with at least 20 employees, but have not yet filed an application for either Social Security or Medicare benefits, you don’t need to do anything. You can postpone applying for Social Security and Medicare until you decide to stop working.

If you’re already enrolled in Medicare Part A, you can opt out by completing form CMS-1763 and submitting it to the SSA.

However:

  • If you’re already enrolled in Social Security and want to opt out of Medicare A, you will have to pay back all of your Social Security benefits

  • If you’ve have not applied for Social Security benefits yet but have already signed up for Part A, you can withdraw your application for Part A by contacting the SSA.

  • If you work for a small employer and the company’s group health plan is secondary to Medicare Part B, you will have to agree to pay what Medicare B would normally cover. (This is generally not a good option for most people.)

What Happens Later When I’m Ready to Retire?

It is very important to know that you must stop contributing to your HSA 6 months before you enroll in Medicare A. This is because Social Security’s retirement benefits are retroactive 6 months.

Still Confused? I Can Help

The ramifications of HSA’s and Medicare are complicated. If you have questions or comments, please let me know. I’m an independent Medicare agent and will do my best to help find the best solution for you.

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