There are guidelines and rules you must follow when it comes to Medicare and Health Savings Accounts. A Health Savings Account is a savings account in which money can be set aside for certain medical expenses. As you get close to retiring, it’s essential to understand how Health Savings Accounts work with Medicare.
How Medicare and Health Savings Accounts Work
Health Savings Accounts help pay for deductibles, coinsurance, copayments, and other medical expenses. Once the money goes into the Health Savings Account account, you can withdraw it for any medical expense, tax-free. Additionally, you can earn interest, your balance carries over each year, and this can become an investment for a retirement fund. Unfortunately, some restrictions come along with having a Health Savings Account with Medicare.
HSA is only for those enrolled in a high-deductible plan. Since Medicare is not considered an HDHP, enrolling makes you ineligible to contribute to an HSA.
Once you enroll in Medicare, it’s illegal to continue to contribute to a Health Savings Account. The only exception to continue contributing to your HSA is to postpone enrolling in Medicare. As long as you have creditable coverage through your employer, you won’t be penalized for delaying your enrollment.
Before you assume your employer coverage is considered creditable coverage, make sure to talk to your benefits administrator. If your employer has less than 20 employees, it won’t be considered creditable coverage.
What is the Penalty for Having an HSA and Medicare?
Once you enroll in Medicare, the IRS sets your contribution limit to your HSA to zero. What this means is, beginning the first month you’re enrolled in Medicare, you’re not allowed to contribute any monies into your HSA.
This limit also pertains to any period of retroactive Medicare coverage. If you continue to contribute, or your Medicare coverage becomes retroactive, you may have to pay a 6% excise tax on those excess contributions. If you happen to have excess contributions, you can withdraw some or all to avoid paying the excise tax.
Can HSA Funds Be Usd to Pay Medicare Premiums?
The good news is, even though you can’t continue to contribute to your Health Savings Account once enrolled in Medicare, you can still use your Health Savings Account funds to pay for many medical expenses, including premiums.
Qualified Medicare Expenses:
- Part A, Part B, and Part D Premiums (Part A is usually premium-free)
- Medicare Advantage premiums
Can I Use My HSA Funds to Pay My Medicare Advantage Premiums?
Yes, you can use your HSA funds to pay for your Medicare Advantage premiums as well as any copays and coinsurance.
Can I Use My HSA Funds to Pay My Medigap Premiums?
No, Medigap premiums are not considered a qualified Medical expense. You can not use your HSA funds to pay your Medigap premiums.
Can My Health Savings Account Reimburse Me for Medicare Premiums?
You can take tax-free withdrawals from your Health Savings Account to reimburse the cost of premiums you’ve paid out of pocket. Even if those premiums were an automatic deduction from your Social Security check. If this is something you didn’t know, you can still withdraw money at any time to reimburse yourself for those premiums.
Can You Contribute to an HSA with Medicare Part A?
Once you enroll in Part A, you cannot actively contribute to your HSA. Any contributions made after you’re Part A is active will be considered excess contributions.
If I’m Enrolling in Medicare Later This Year, How Much Can Be Contributed to My HSA?
Health Savings Account beneficiaries can contribute until the first day of the month; Medicare is sufficient. It’s your responsibility to prorate both your regular contribution and the catch-up contribution if applicable. To determine the prorate maximum contribution, add the IRS maximum plus the catch-up amount ($6,750 or $3,350 + $1,000 catch-up amount). Then, divide that number by 12 months and multiply by the number of months you won’t have Medicare.
How to Learn More About Your Medicare Options
Whether working or on a fixed income, every penny counts. With each year bringing escalating healthcare costs, obtaining supplemental Medicare insurance is becoming more and more necessary.
There many benefits when it comes to working with a Medicare agent. In addition to having an agent by your side, you'll get continuous support on claims, appeals, and much more from our Client Care Team.
Call us today for more information on the various types of policies available in your area including Medigap, Medicare Advantage, and prescription drug plans. You can also fill out our rates comparison form to see all your options side by side now.