Everyone knows Medicare AEP is coming, and health savings accounts are extremely popular among employer coverages. But even though HSA accounts are not available with Medicare, there are a few things that prospective Medicare enrollees need to know, especially if they’re considering dropping their group health insurance and starting a Medicare plan.

What to Know About HSAs as Medicare AEP Approaches

Millions of working Americans use HSA accounts to keep their health insurance costs low. These plans combine a health savings account with a high-deductible health plan. Health Savings Account funds are used to pay for qualified medical expenses. In addition to being an affordable health insurance option, contributions aren’t taxed.

Heath Savings Account and Medicare

HSA accounts are special savings accounts that let you contribute funds tax-free. They are required to be coupled with a high-deductible health plan.

Medicare isn’t considered a high-deductible health plan. Therefore, once you begin Medicare, you can no longer have any tax-deductible contributions to your HSA account.

However, HSA funds can be used for Medicare-related out-of-pocket costs. HSA funds can be used for the following:

Medicare Supplement plans are not considered a qualified expense, so these premiums can’t be paid with HSA funds.

Once you start Medicare, you can still use your HSA funds for qualified items and services not included by Medicare, such as:

Contributions to HSA Accounts on Medicare

Once Medicare begins, you’re no longer allowed to have contributions by your employer or yourself towards your HSA. Contributions to an HSA while enrolled in Medicare will result in several penalties from the IRS.

Penalties include a 6% excise tax, 10% federal income tax if enrolled during the HSA testing period, and repayment of back taxes on contributions and interest.

Proposed Changes to HSA Accounts

In 2021, some proposed changes to HSA accounts are still on the table in congress. These proposed changes would allow beneficiaries’ to continue HSA contributions while enrolled in Medicare. However, included with this change would be a few tradeoffs.

Currently, Medicare beneficiaries can make tax-free withdrawals for non-medical expenses. This would no longer be allowed. Another drawback would be that they could no longer use the funds to pay Medicare premiums.

Comparing HSA Employer Plans to Medicare

As AEP approaches, many eligible beneficiaries and potential retirees are looking to make a decision. Do they stay with their employee-sponsored HSA health coverage or move forward with Medicare enrollment?

Some benefits of staying on the HSA include tax-free contributions, tax-free earnings, and untaxed withdrawals for qualified Medical expenses. Moving to Medicare could result in lower premiums, more comprehensive coverage, and additional benefits not covered by the HSA.

The AEP allows Medicare beneficiaries to change plans associated with Medicare.


What is the downside of a health savings account?

While HSA accounts are popular, there are a few downsides. You must have a high deductible health plan, which sometimes causes pressure to not go for healthcare visits to save or stretch the funds. Other downfalls include potential taxes and fees.

What do I do with my HSA after I quit my job?

Once you retire or quit your job, You can continue to use the funds in your HSA to pay for qualified medical expenses. Eligible costs include Medicare premiums, coinsurance, and copays. You can use the funds for non-medical withdrawals without penalty if you’re on Medicare.

Is money put into an HSA pre-tax?

Yes! There are several tax benefits to an HSA. Pre-tax contributions are one of these tax advantages.

What happens to unused health savings account money?

Unlike some other medical spending accounts, unused money in an HSA account will roll over. This rollover allows you to continue to grow the account to protect yourself from high medical costs.

What is the difference between insurance and an HSA?

Insurance helps pay for your medical costs. An HSA is a savings account used to help cover the costs left over by your health coverage.

How does an HSA work?

HSA plans combine with a high deductible health plan. Tax-free contributions are deposited into the health savings account, and those funds are used to pay for qualified medical expenses.

How do I find an HSA provider?

To find a healthcare provider that accepts the insurance related to your HSA plan. Review the plan materials provided by your high-deductible health plan. The health plan will typically have an online portal that allows you to search for participating physicians.

How does an HSA work with a Flexible Spending Account?

These two accounts work entirely independently of one another. You can use either one for qualified medical expenses if you have both.

What types of expenses can I pay for with an HSA?

HSA accounts can pay for Medicare premiums and related medical expenses such as copays and coinsurances. These copays and coinsurances relate to any qualified medical costs.

Is there a limit to how much I can put into an HSA?

Yes, annual contribution limits in 2022 are $3,650 for an individual and $7,300 for a family. When you’re over the age of 55, you can make an additional catch-up contribution of $1000

What is the difference between a flex spending account and an HSA?

Flexible spending accounts are not required to connect with a health plan and don’t accrue interest. HSA accounts require you to enroll in a high-deductible health plan, and they grow with interest.

Help with Finding Medicare Health Plans in AEP

With AEP fast approaching, it’s easy to be overwhelmed. Let our licensed insurance agents take the guesswork and frustration out of the process. Our agents have access to the top carriers nationwide.

They can provide you with the information needed to make an informed decision. For assistance, give us a call or, if you prefer, fill out our online request form. We’re here to make this process as quick and easy as possible.

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Written By:
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Lindsay Malzone, Lindsay Malzone is the Medicare editor for Medigap.com. She's been contributing to many well-known publications 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.
Reviewed By:
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Rodolfo Marrero, Rodolfo Marrero is one of the co-founders at Medigap.com. He has been helping consumers find the right coverage since the site was founded in 2013. Rodolfo is a licensed insurance agent that works hand-in-hand with the team to ensure the accuracy of the content.