Lately, I’ve had a lot of questions about how HSA’s work with Medicare, so I thought a blog post would be helpful.
What is an HSA?
An HSA is a Health Savings Account. You may contribute to an HSA on a pre-tax basis, but only when you have a qualified High Deductible Health Plan (HDHP.) With HDHP’s, out-of-pocket expenses such as deductibles, co-payments, and co-insurance can add up quickly, and HSA’s are designed to help with those costs. HSA’s can be set up through employers or independently, and are overseen by banks, credit unions, or other financial institutions.
What happens if I have an HSA when I turn 65?
First of all, you’re now eligible for Medicare - congratulations! With Medicare, many of your medical expenses will by covered by Medicare, but there are still out-of-pocket expenses to consider:
With Original Medicare, you’ll have to pay a Part B premium (and possibly one for Part A), plus deductibles, etc. after you reach the limits that Medicare pays.
Medicare Advantage plans may be “zero-premium”, but you’ll still have to pay for Part B premims, deductibles, and copayments.
Medicare Supplements and Prescription Drug Plans are designed to cover deductibles and limit out-of-pocket expenses, but they do have premiums.
Based on all of this, it would be great to be able to keep your HSA and keep contributing to it to cover Medicare out-of-pocket expenses. Unfortunately, that’s not allowed! You must have a high-deductible health insurance plan in order to contribute pre-tax dollars to an HSA, so once you enroll in Medicare Part A or Part B, you may no longer contribute pre-tax dollars to your HSA.
What Happens to my HSA when I enroll in Medicare?
The money is still yours, and the good news is that you can use it to pay for Medicare expenses until the money is gone. However, you may NOT contribute money to the account anymore.
Should I delay enrollment in Medicare so so that I can keep contributing to my HSA?
Good question, and the answer depends on your work situation when turning 65:
If you intend to keep working and your employer has 20 or more employees, Medicare insurance will pay after the company’s insurance. You may delay enrolling in Medicare with no penalty and continue contributing to your HSA.
If you want to continue working and you’re working for an employer with less than 20 employees, Medicare insurance pays before the employer’s insurance. You may very well need Medicare in order to have primary insurance. Therefore, you should stop your HSA contributions when your turn 65 if you work for an employer with fewer than 20 employees.
Finally, let’s say you delay your Medicare enrollment and keep your employer coverage, and your employer has more than 20 employees. When you enroll in Medicare, Part A is typically dated six months before Part B. That’s why conventional wisdom states that you should stop contributing six months before retiring.
I hope this helps, but Medicare is confusing. If you have questions, please contact me.