If you’re almost eligible for Medicare and you have a Health Savings Account, it’s important to understand how your coverage will work. A Health Savings Account (HSA) is an account where money is set aside to cover qualifying medical costs.

When it comes to any insurance there are guidelines you’ll need to follow, keep reading to learn more on how your Health Savings Account interacts with Medicare.

Understanding Medicare and Health Savings Accounts

Health Savings Accounts require enrollees to have a high deductible plan. Medicare is not a high deductible health plan, which means you’re ineligible to make HSA contributions.

When your Medicare begins it’ll be illegal to contribute to your HSA. If you wish to continue your HSA, you can choose to delay Medicare. You’ll want to talk to your benefits administrator to ensure creditable coverage is provided to you.

Without creditable coverage, you can incur late penalties. If you have creditable coverage, you’ll have access to a Special Enrollment Period when you decide to enroll in Medicare.

Part A can be retroactive up to 6 months, but no further back than the initial eligibility month. When you choose to sign up for Medicare make sure you discontinue HSA contributions for at least 6 months before Medicare begins. If you don’t discontinue HSA contributions, a tax penalty may apply to you.

Can HSA Funds Be Used to Pay Monthly Medicare Premiums?

You can still use HSA funds to pay for your Medicare premiums, even though you can’t continue to contribute to the account. HSA funds can pay for medical expenses such as Part A, Part B, Part C, and Part D premiums.

A Health Savings Account can also pay for copayments or coinsurances associated with Medicare or Medicare Advantage plans.

Medigap premiums are not a qualified expense, you can’t use HSA funds for your Medigap premiums.

FAQs

Is there a penalty for contributing to an HSA when you have Medicare?

Yes, contributing to an HSA when you already have Medicare means there will be a penalty. If the penalty applies to you, a 6% excise tax on those excess contributions.

When you have excess contributions, withdrawing some or all of your funds can help you to avoid the excise tax. Consult your HSA for more details on your plan.

How much can I contribute to my HSA before my Medicare begins?

The annual contribution amount limited by the IRS is subject to change, but your benefits administrator will have current information. If you’re over the age of 55, there is likely a “catch up” contribution that allows you to contribute more than the standard amount.

Any excess contributions won’t be tax-deductible and will go on your tax return as “other income.”

What happens to my HSA when I turn 65?

While you won’t be able to make contributions to the HSA account, you can still use the money in the account to cover qualifying medical expenses. Another option is to use the HSA funds as a retirement account.

HSA is meant to cover eligible medical costs. Any withdraws made on the HSA, could be subject to an income tax.

Can you have a Health Savings Account with Medicare?

Even though Part A is free, contributing to an HSA with any type of Medicare isn’t allowed. While you can’t contribute to the HSA, you can use the funds previously contributed to cover the cost of certain premiums, copayments, and coinsurance.

If you have an HSA account, talk to an insurance agent about the best options for you when you enroll in Medicare. And keep in mind that Medicare is always changing, a recent bipartisan bill in Congress could change the laws about contributions towards Health Savings Accounts for Medicare recipients.

How to Find Extra Coverage for Your Medicare

Depending on what you want your insurance to do for you, there are various types of Medicare coverage options. Some options have higher premiums and little out-of-pocket costs. Other plans have lower premiums and higher out-of-pocket costs.

If you like having an HSA, a Medicare Medical Savings Account could be a plan option that works for you.

To better determine which plan makes the most sense, give us a call. Our agents can help you identify the policy that makes the most sense for you and your situation. We can even walk you through an application to help save your time.

If you prefer to do things online, you can fill out an online rate form to compare Medicare insurance costs and coverage in your area now.

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by Lindsay Malzone, Lindsay Malzone is the Medicare expert for Medigap.com. She's been contributing to many well-known publications as an industry expert since 2017. Her passion is educating Medicare beneficiaries on all their supplemental Medicare options so they can make an informed decision on their healthcare coverage.