Medicare and HSA’s

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What is HSA?

 

An HSA (Health Savings Account) is an account that eligible individuals covered by a qualified high-deductible health plan (HDHP) can establish to pay for certain medical expenses for themselves, their spouses, and their tax dependents on a tax free basis. According to federal tax regulations, the person opening an HSA cannot be currently enrolled in Medicare and can not be listed as a dependent on another person’s income tax return. Your HSA can be overseen by your employer, or you can have an individual HSA that is overseen by a bank, credit union or insurance company.

Does the HDHP Policy need to be in my name to open an HSA?

No, the policy does not have to be in your name. As long as you are covered under the HDHP, you can be eligible for an HSA - assuming you meet the other eligibility requirements for contributing to an HSA. You can still be eligible for an HSA even if the HDHP is in your spouse’s name.

How do I know if I am eligible, entitled or enrolled in Medicare?

Eligible:

  • You have met the requirements to qualify for Medicare Part A, but have not yet applied.

Entitled:

  • You are eligible for Medicare, filed to receive Medicare Part A, and your name is in the system - or - Application is processed and you have received a card indicating your Medicare overage start date.

Enrolled:

  • You have chosen to sign up for Medicare Part B - or you pay for Medicare Part A premiums.

So how does this impact the HSA?

Eligible:

  • If you are eligible for Medicare Part A - hospital insurance, but have not filed an application for either Medicare or Social Security Benefits, you need to do nothing. You can contribute to your HSA past age 65 and postpone applying for Social Security and Medicare until you stop working. It is important to note that if you do not take Medicare when you first qualify, you must take special precautions if and when you do decide to collect Social Security Benefits. You need to be sure to stop all contributions to your HSA up to six (6) months before you collect Social Security. This is because when you apply for Social Security, Medicare Part A will be retroactive for up to six months (as long as you were eligible for Medicare during those six months). If you do not stop contributing the six months before you apply for Social Security, you may have a tax penalty. The penalty is because you were not supposed to put money into your HSSA while you had Medicare.

Entitled

  • If you are entitled to Medicare because you signed up for Medicare Part A at age 65 or later and have not yet applied for social Security benefits, you can withdraw your application for part A. If you are eligible for premium free Medicare Part A, and defer enrollment until a special enrollment period, you should not have any penalties for your Part A coverage. Please note that there may be penalties for late enrollment into Part B or Part D if your plan is not considered creditable coverage.

  • Whether or not you delay enrollment in Medicare so you can continue contributing to your HSA, depends on your circumstances. If you work for a small employer (less than 20 employees), you typically need to take Medicare when you first qualify even though you will lose the tax advantages on your HSA. Health care coverage from small employers pays secondary to Medicare. This means that if you fail to enroll in Medicare when you become eligible, you may have little of no health coverage. Health coverage from a large employer pays primary, and Medicare will be secondary. So you may not need to have Medicare in order to pay your health expenses.

  • If you qualify for Medicare due to a disability, an employer is considered small if it has fewer than 100 employees. If you are currently employed, an employer is considered small if there are fewer than 20 employees. Remember that if you delay enrollment in to Medicare when you are first eligible, you must then enroll when you lose your current employer coverage - which will be considered a special enrollment period.

Enrolled:

  • If you have applied for, or are receiving, Social Security Benefits - which automatically entitles you to Part A - you cannot continue to contribute to an HSA. You can continue to withdraw any remaining funds in your account.

I have heard that I will be automatically enrolled in Medicare Part A when I turn 65, is this true?

If you are collecting benefits from Social Security or the Railroad Retirement board when you become eligible for Medicare, you will be automatically enrolled in Medicare Part A and Part B. This coverage will start the first day of the month in which you you turn 65 (except if your birthday is on the first day of the month, then you are eligible for Medicare the first day of the month prior to your birthday). If you are not collecting benefits from Social Security or the Railroad Retirement Board when you become eligible for medicare, you must actively enroll yourself during your initial enrollment period. You can do this by contacting Social Security. You cannot continue to contribute to your HSA once you have enrolled in Medicare.

I am thinking about retiring and have declined my Medicare benefits so I can contribute to my HSA, what do I need to know before I apply?

If you do not take Medicare when you first quality, you need to take some steps to ensure you do not receive a tax penalty. You need to stop all contributions to your HSA up to six (6) months before you begin collecting Social Security. When you apply for Social Security, if you do not stop your contributions the six (6) months before you apply for Social Security, you may have a tax penalty. The penalty will be incurred because you were not supposed to be putting money in your HSA while you had Medicare.

I am turning 65 this year and will be enrolled in Medicare at that time. How much can I contribute to HSA for the yea

You will be eligible to contribute to your HSA only for the portion of the year that you are not covered by Medicare. You must prorate both your regular contribution amount as well as the catch-up contribution if applicable. To calculate the prorated maximum contribution amount, add the IRS maximum ($6,450 or $3,250) plus the catch-up ($1,000), divide by 12 (months) and then multiply the number of months that you will be enrolled in the HSA and not in Medicare as of the first month.

What if you are covered under your spouse’s health savings account at work?

You will be eligible to contribute to your HSA only for the portion of the year that you are not covered by Medicare. You must prorate both your regular contribution amount as well as the catch-up contribution if applicable. To calculate the prorated maximum contribution amount, add the IRS maximum ($6,450 or $3,250) plus the catch-up ($1,000), divide by 12 (months) and then multiply the number of months that you will be enrolled in the HSA and not in Medicare as of the first month.

What are approved medical expenses that I can use my HSA monies towards?

You can pay for eligible expenses from your HSA for yourself or your dependents, even if the dependent is not covered under your medical plan and even if your spouse has other coverage. This can include co-pays, deductibles and other eligible expenses for which you will not be reimbursed elsewhere.

Are Medicare costs considered eligible expenses?

Medicare Parts A, B, and D premiums, Medicare Advantage plan premiums and any Medicare out-of-pocket expenses such as deductibles and co-pays are eligible expenses for HSAs. Dental and vision expenses are also covered.

Medi-gap or Supplemental insurance policies from a private insurance company are not an eligible expense under an HSA plan. This includes any premiums or expenses associated with these plans.

What happens to the money in my HSA once I enroll in Medicare?

Even though you cannot continue to make contributions to your HSA account once you enroll in Medicare, the money that has accumulated in your account remains yours to spend, tax free, on eligible expenses listed under IRS publication 502. If you are age 65 or over you also have the option to withdraw the money for any purpose and pay only the income tax; no penalty applies.