A Health Savings Account (HSA) is a savings account in which money can be set aside for certain medical expenses.
HSA accounts work only with high deductible health insurance plans and are tax-exempt. HSA accounts help pay for deductibles, coinsurance, copayments, and other medical expenses.
Once the money goes into the HSA account, you can withdraw it for any medical expense, also tax-free.
Additionally, you can earn interest, your balance carries over each year, and this can become an investment for a retirement fund.
As you get close to retiring, it’s essential to understand how HSA works with Medicare.
How Medicare and HSA Work
With more and more seniors working later in life, there’s the chance of them having employer-offered health benefits.
If they work for a large company, the group benefits have the potential of being HSA compatible.
Some companies offer to contribute to the employee’s HSA account as long as that’s the only insurance the employee carries.
Unfortunately, some restrictions come along with having an HSA account and how HSA works with Medicare.
The only exception to continue with your HSA account is to postpose your Medicare effective date. You have the option to do so without penalty up until retirement.
Medicare will not charge the late enrollment penalty so long as you continue with group health benefits primary.
Medicare Part A and HSA
If by chance, you already enrolled for Part A, you can put a stop on your application. If you decide to apply for Medicare, you can keep the funds accrued into your HSA account.
The remaining amount can go towards any of your healthcare costs associated with Medicare.
Medicare and HSA accounts aren’t compatible. If you have group health insurance with an HSA account, make sure to research before enrolling in Medicare.
Deciding on HSA VS. Medicare
Working baby boomers will want to know which route to go when considering Medicare versus keeping their existing HSA account.
If you’re deductible with your broad group health insurance policy is $2,600 or higher, the out of pocket costs will be extensive. The Part A deductible is $1,364, in which case your out of pocket expenses would be significantly lower.
A spouse may continue with their HSA while the other spouse has Medicare, without penalty. Anyone, not just the employer, can contribute to the active HSA account, up to the IRS allowed limits.
You both can make contributions to the HSA account despite one spouse having government-funded health insurance.
HSA for Spouse and Dependents
Any money in the HSA account can be for the spouse or any dependents of the account holder as well as the beneficiary.
The remaining cash is an HSA account can still go towards any healthcare costs and retirement benefits.
You may still incur the Part D penalty if you delay enrollment. Most high-deductible health plans don’t have prescription drug coverage as much as a Part D Plan covers.
If your group health benefits don’t provide the coverage that Part D would consider credible, you may get forced into getting a Part D plan to avoid the late penalty.
The Part D penalty charges you a percentage for every month you went without drug benefits.
For more information regarding the benefits of Medicare and HSA accounts, you can contact our insurance agents. They can answer any questions you may have and give you the necessary information to make an educated decision.
Using HSA Funds to Pay for Medicare Premiums
The good news is, even though you can’t continue to contribute to your HSA account once enrolled in Medicare, you can still use your HSA funds to pay for Parts A, B, C & D premiums. You can also use it to cover any medical expenses your left to pay for after Medicare pays their portion.
Your HSA Can Reimburse You for Medicare Premiums
You can take tax-free withdrawals from your HSA account to reimburse yourself for Part B & Part D premiums. 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.
According to Begonya Klumb, head of HSAs for Fidelity Health Care Group, “When reimbursing yourself from the HSA, he must maintain proof of payment and documentation that the expenses were eligible, in the event of an audit (although you do not need to submit any receipts to receive reimbursement),”
Using HSA Funds to Pay for Medigap Premiums
Unfortunately, you cannot use your HSA funds to pay for your Medigap premiums.
I’m Enrolling in Medicare Later This Year, With CDH Coverage at work, How Much Can Be Contributed to My HSA?
HSA 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.
The total will be the maximum contribution dollar amount for the year. Any money left in the HSA when Medicare becomes active can go towards copayments, deductibles, and coinsurances.
Get Extra Funds to Help Pay for Medical Expenses
Part B only covers your doctor’s expenses 80%. While that may seem like plenty, that’s not factoring in deductibles, copayments, and coinsurance.
Between Part B coinsurance, and all the other out of pocket costs not covered by Medicare, you can quickly find yourself in a financial bind.
If you decide to go with Medicare as your primary insurance, you can purchase additional healthcare benefits. Medigap plans were made to work alongside Medicare.
With seniors, whether working or on a fixed income from social security, every penny counts. With each year bringing escalating healthcare costs, obtaining a supplemental Medigap plan is becoming more and more necessary.
When you sign up for supplement Medicare through us, 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. You can also fill out our online forms for Medigap plan comparison and pricing.