For people who are still covered under job-based health insurance and enrolled in a High Deductible Health Plan coupled with a Health Savings Bank Account (HSA), or for those people enrolled in Medicare who have money they previously set aside in an HSA, this article has been written for you.
What is an HSA?
An HSA can be paired with certain High Deductible Health Plans and allow the insured to set aside funds on a tax-preferred basis to pay for allowed medical expenses. The biggest benefit of an HSA is the tax savings. The funds set aside in an HSA are tax deductible, and if they are used for qualified medical expenses, they can be withdrawn from the account tax free as well.
How is Contributing to an HSA Affected by Enrollment in Medicare?
The IRS does not allow someone to contribute to an HSA bank account if they have any “other health insurance” in addition to the underlying High Deductible Health Plan.*
Medicare Part A and/or Part B is considered “other health insurance”, so if a person is enrolled in either form of Medicare, they are technically no longer allowed to contribute to the HSA bank account.
*IRS Publication 969 (2019) explains in detail the rules related to HSA bank accounts s and other tax-favored health plans. http://irs.gov/publications/p960
The Medicare 6 Month Rule
A person can contribute a prorated portion of the annually allowed amount into their HSA bank account up until the month that they are enrolled in Medicare Part A and/or Part B.
If a person enrolls in Medicare when they first become eligible, typically at age 65, then they can contribute a prorated portion of the annually allowed HSA amount up until the month that they turn age 65.
If a person delays enrollment in Medicare until after age 65, when they later enroll in Medicare their Part A effective date is backdated 6 months (though it will not be backdated to begin before the month that they turn age 65.)
If the person enrolling in Medicare after age 65 is contributing to an HSA bank account, they need to factor in this 6 Month Rule when determining the prorated amount they are allowed to contribute to the HSA bank account during that tax year.
Using an HSA to Pay Medicare Expenses
You can use the money in your HSA bank account to pay certain Medicare expenses, including:
- Part B, Part C and Part D premiums
- Medical and prescription co-pays and other approved healthcare expenses
When you use your HSA bank account to pay these qualified expenses, you will be essentially withdrawing the money you saved on a tax deductible basis, tax-free!
How does Medicare affect FSA contributions?
People often confuse having an HSA with an FSA. FSA stands for Flexible Spending Account.
A person can have active contributions to an FSA account if they are enrolled in Medicare. And money set aside in an FSA can be used to pay medical or prescription co-pays associated with a person’s Medicare plan.
However, FSA funds cannot be used to pay Medicare premiums.
Additional HSA Questions
The above information is a general overview of how Medicare interacts with your HAS bank account.
For more specific information about HSA contribution and withdrawal rules, please check with your HSA bank account provider.