HSAs and Medicare Don’t Play Nice Together

Learn how to avoid tax consequences if you have an HSA and want Medicare
Alex Enabnit
Licensed Insurance Agent and Medicare Expert Writer
July 31, 2020

Health Savings Accounts (HSAs) paired with high-deductible health plans (HDHPs) have become incredibly popular in recent years—and for good reason. An HSA account provides you with an unparalleled triple tax break: tax-deferred contributions, tax-free investment growth, and tax-free withdrawals for qualified medical expenses.

The HDHP is there when you need it, kicking in once your health-care spending reaches a specified amount. If you don’t spend it all, you can roll over that HSA money for a rainy day.

Unfortunately, because of some strict IRS laws, you cannot contribute to your HSA if you’re enrolled in Medicare—any part of Medicare.

Many people who work past 65 and stay on employer-sponsored health plans decide to enroll in Medicare Part A and delay Part B. Unfortunately, people with an HSA and an HDHP don’t get this same privilege.

If you plan on working past 65 and keeping your HSA, pay close attention to learn what you should do about your Medicare enrollment.

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I have an HSA from my work. What should I do about Medicare?

If you plan on working past 65 and contributing to your employer-provided HSA, you shouldn’t sign up for Medicare—not Part A, not Part B, not even Part D. 

As long as you’re still working, you can get a Special Enrollment Period to apply for Medicare without penalty. So if you like your employer-provided health insurance, there’s no need to enroll in Medicare when you turn 65.

Here are some other tips:

If you have an HSA, don’t apply for Social Security benefits

If you apply for Social Security benefits when you’re 65 or older, the Social Security Administration automatically enrolls you in Medicare Part A . Once that happens, your HSA contribution limit becomes $0. To avoid this happening, don’t apply for Social Security benefits until you retire.

What if I already applied for Social Security retirement benefits?

If you already applied for Social Security benefits, you can disenroll from Part A, but you’ll need to jump through a few hoops:

  1. First, you’ll need to repay all your Social Security payments.
  2. Next, you’ll repay anything Medicare spent on your health care.
  3. Only then can you disenroll from Part A by calling Social Security at 800-772-1213 (TTY: 800-325-0778).

Then, when you eventually retire and drop your HSA (or lose your coverage), you can reapply for Medicare and retirement benefits without penalty.

Stop HSA contributions months before applying for Social Security.

When you start drawing Social Security benefits, the Social Security Administration backdates your Medicare Part A enrollment by, at the most, six months (it depends on when you became eligible for Medicare). To avoid any overlap, stop contributing to your HSA six months before applying for Social Security benefits.

FAQ

Why are HSAs and Medicare mutually exclusive?

IRS law states that HSA eligibility requires enrollment in only a high-deductible health plan (HDHP). Enrollment in an additional health plan is forbidden—including Medicare. Because of the enormous tax benefits included with an HSA, the IRS upholds this rule strictly.

If you were to get some other health coverage (like Medicare Part A) simultaneously with your HSA and HDHP, the IRS would limit your HSA contribution to $0. Consequently, any money you put in your HSA would be above the contribution limit and considered taxable income. It also would be subject to an excise tax. Not fun.

If I enroll in Medicare, do I lose my HSA?

Don’t worry, your hard-earned HSA funds don't disappear when you enroll in Medicare. Although you can't contribute to your HSA once your Medicare coverage begins, you can still withdraw from it for qualified medical expenses—even while you're in Medicare.

Can I enroll in Medicare if I’m covered by my spouse’s HSA?

If you're covered by your spouse's HSA, you can enroll in Medicare without penalty since you’re not the contributing partner.

Can an HSA be used for Medicare premiums?

If you’re 65, you can use your HSA for Medicare premiums—excluding a Medigap (Medicare Supplement) insurance plan. You can also use your HSA for your spouse’s Medicare premiums (if your spouse is 65 or older).

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Alex Enabnit
Written by
Alex Enabnit
Medicare and geriatric care expert, Alex has one motivation behind every word he writes, and that’s finding you the best medical coverage for your situation. Alex has been featured on Bloomer Boomer, Best Company, HealthPopuli.com, the Daily Ledger on the One America News Network, WBAP News radio, and more. Outside of work, you can find him hiking with his wife and pup or (occasionally) going to the gym.
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