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Medicare and Health Savings Accounts (HSA)


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
  • Copays
  • Coinsurance

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 Medicare expense. You can not use your HSA funds to pay your Medigap premiums.

Can My Health Savings Account Reimburse Me for Medigap Premiums?

Yes, in some Medicare Supplement plans you can get reimbursed from your HSA for premiums you paid out of pocket.

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 Have an HSA with Medicare Part A?

Once you enroll in Part A, you can not 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.

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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.

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Lindsay Engle

Lindsay Engle is the Medicare expert for MedicareFAQ. She has been working in the Medicare industry since 2017. She is featured in many publications as well as writes regularly for other expert columns regarding Medicare. You can also find her over on our Medicare Channel on YouTube as well as contributing to our Medicare Community on Facebook.

22 thoughts on “Medicare and Health Savings Accounts (HSA)

  1. Lindsay, my wife and I are approaching age 65. My wife is still employed (20+ employees) and plans to continue to work. I am retired and am covered under my wife’s HDHP, which she makes HSA contributions deducted from her pay. Since she must pay my entire premium for my HDHP coverage ($900+ a month), I have decided to sign up for Medicare when I become eligible. Because I was covered under my wife’s HDHP, will my signing up for Medicare present any tax problems, since she will continue to contribute an HSA? I understand that when my wife signs up for Medicare in the future, HSA contributions can no longer be made. Will my signing up for Medicare while she stays on her present plan present a tax penalty?

    1. Hi Chuck! Since Medicare is individual, and the HSA contributions are from your wife, your enrollment into Medicare will not impact her contributing to the HSA. You will not see any tax penalties. You are correct, once she is enrolled in Medicare then she will need to stop contributing to the HSA. Let me know if you have any more questions

  2. Lindsay, I am 65 and have an HSA plan through my employer. I opted out of Medicare A but I will start drawing SS at age 66 plus 2 months(April 2021). I quit contributing to my HSA in November, 6 months prior to receiving SS. Because I still work, as of Jan 1, 2021 i will be on my employers PPO plan. My question is when should I enroll in Medicare A, 1-1-2021 or 4-1-2021?

  3. My partner will be retiring at her SSA retirement age and starting Medicare then also. She is stopping her HSA contributions 6 months prior to avoid the tax problems. Her company also contributes to her HSA. Do they also need to stop contributing to the HSA 6 months prior to her retirement or can those contributions continue without causing her any problems?

    1. Hi Kurt! According to the IRS, you cannot contribute to your HSA at all, this includes both employee and employer.

  4. Hi Lindsay,

    Thanks for the quick reply and the link on Is Medicare Mandatory.

    I read the Medicare Mandatory information and have an additional question.

    There is a statement under What Parts of Medicare are Mandatory:
    “Enrolling in Part A is mandatory to keep your Social Security benefits.”

    I just want to confirm my understanding that:

    I can file for my Social Security Benefits without enrolling in Medicare Part A as long as I have my employer Health Insurance?

    Thanks again for your help,
    Ed

    1. Hi Ed! I should’ve been more specific, I apologize. Medicare is not mandatory, however, if you’re collecting Social Security income you cannot opt-out of Part A. Regardless if you have employer health insurance. If you start collecting Social Security benefits, you must enroll in Part A and you can no longer contribute to your HSA. Let me know if you have any more questions!

  5. Hi Lindsay,

    I have reached 66 years old this year (FRA).
    I am and intend to remain employed at my company of 17,000+ employees.

    I am enrolled in a High Deductible health insurance plan (family) through my employer.
    I intend to remain on the High Deductible Health Insurance plan through my employer.
    I currently have an HSA account that my employer makes an annual contribution too.

    I would like to file for Social Security benefits and have been told my current income will not impact by SS benefits and allow collecting both.

    I spoke with my health insurance company and they stated that as long as I continue to work for my employer, they will remain my primary insurance (and for my family too).

    When I file for SS, is it required to file for Medicare Part A even though I will remain on my High Deductible Health Insurance?

    If yes, would filing for Medicare Part A remove my eligibility for my HSA account?

    Thanks for your help,
    Ed

    1. Hi Ed! Medicare is not mandatory, you don’t have to enroll in Part B when you start collecting Social Security benefits. However, if you’re collecting Social Security benefits, you cannot opt-out of Part A. Most people choose to enroll in Part A with or without group insurance since it’s premium-free for most and provides extra benefits. You will not be eligible to continue to contribute to your HSA if you enroll in Part A. So yes, filling for Part A would remove your eligibility to contribute to an HSA account. If you continue to contribute to your HSA once you enroll in Part A, you will be penalized.

  6. Hi. I am employed full time (100+ employees) and have employer insurance coverage. We are currently (2020) on a high deductible insurance plan with a HSA. I pay into the HSA and my employer pays into the HSA. My husband is on my medical insurance plan. He is on disability and he starts Medicare part A in November 2020. Do I have to stop my HSA payments out of my paycheck and employer contribution for 2020 starting in November? For 2021 elections, my employer states that I cannot have a high deductible plan and I cannot contribute to the HSA for both myself and spouse and child due to husbands Medicare part A status. I was told I could only choose an HMO or traditional insurance plan with my husband being on Medicare. Is that correct?

    1. Hi Sandi! As long as your husband is not contributing to your HSA account, then you should not have to make any changes to your current HSA contributions. Your husband’s Part A status does not impact your HSA contributions since Medicare is individual plans. However, this is somewhat of a grey area if your current plan is attached to the HSA and you plan to keep your husband on your group coverage. We have a great article on Medicare and employer coverage that may help answer some of your questions. Based on your question, it sounds like the best option is to get your husband on both Part A and Part B of Medicare, then enroll him in either a Medigap or Medicare Advantage plan to supplement his Original Medicare benefits. This option won’t impact your HSA contributions or your options during the 2021 elections.

  7. I understand that Medicare part A is retroactive for 6 months. I have a HSA and employer heath coverage (HDHP) that I plan on keeping until I retire at age 66. What happens if I have hospital expenses that I pay out of my HSA in that retroactive Medicare period. How will I recoup those payments?.

    1. Hi Sheila! Using your HSA account to pay your out of pocket medical expenses is no different then if you were to use a debit/credit card or cash. You would just need to submit your receipt to Medicare for reimbursement. The retroactive period only negatively impacts your HSA if you were contributing to it during that retroactive period. That’s when you could see penalties. I hope this helps!

    1. Hi Lee! Any HSA contributions must stop six months before your Medicare effective date in order to avoid tax penalties. You would want to stop contributions ASAP. You’ll owe 6% excise taxes on any disallowed pretax contribution that you may have made after your Medicare became active. I hope this helps!

  8. I was told that if you have a H.S.A. that Medicare will require you to use the money in that account before Medicare will cover any expenses. Is this correct?

    1. Hi Mike! No, Medicare will not require you to exhaust your Health Savings Account funds before they cover your medical expenses. I hope this helps!

  9. Lindsay, I am covered under my husband’s medical insurance and he has HSA contributions deducted from his pay. I am disabled and am covered by Medicare Part A only. I also turn 65 later this year but have opted out of Part B due to coverage under my husband’s insurance. Due to the Medicare Part A, can we still claim as a couple or should be only have money deducted as a single?

    1. Hi Lauri! Your husband can continue contributing to his HSA until he joins Medicare. Your HSA contributions are based on his status in this scenario instead of yours. If you were contributing to the HSA, then there would be an issue. I hope this helps!

  10. Lindsey – since one can’t use an HSA to pay for Medigap premiums, but they CAN reimburse themselves for out-of-pocket costs for premiums they’ve paid themselves, can’t they then reimburse themselves for Medigap premiums? Wouldn’t this be tax free? I’m a Medicare agent and Certified Senior Advisor (CSA) in the Seattle, WA area but have never come up against an HSA or FSA before now. I have a client turning 65 in Oct, she says she has a medical savings account, wants to pay premiums from that. With her severe chronic medical issues, she needs a Medigap policy, not a MAPD. She’s looking at some very high-cost surgeries in the near future, so Medigap is best for her situation.

    1. Hi Sandy! Yes, you can be reimbursed for the premiums you paid for your Medicare Supplement plan. From my research, it says SOME Medicare Supplement plans you can get reimbursed the cost of the premium you paid out of pocket from your HSA. I’m not able to find much detail or documentation regarding this, unfortunately. I would call the HSA benefits administrator directly to see what the process is to get reimbursed for her supplement premiums.

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