8 HSA and Medicare FAQs

The rules involving HSAs (Health Savings Accounts) and Medicare can be complicated and confusing. To help you better understand how these benefits work, we’re addressing the most commonly asked questions.

Do I have to stop contributing to my HSA when I turn 65?

Maybe. The rules for contributing to an HSA do not change simply because you are turning 65. You may set up and/or continue to contribute to your HSA in combination with a High Deductible Health Plan (HDHP) — as long as you do not enroll in ANY form of Medicare (Part A, B, C or D) and you continue to meet the other requirements involving your current HDHP.

If I sign up for any Medicare, can my employer continue to contribute to my HSA?

No. Once you sign up for Medicare, all HSA contributions made by you or on your behalf by an employer or others must cease.

What are the potential tax consequences if I continue to contribute to my HSA after enrolling in Medicare?

Contributions made to your HSA after enrolling in Medicare will most likely be subject to payment of back taxes and penalties. Contributions could also be considered “excess contributions” and be subject to additional excise taxes.

What if my spouse enrolls in Medicare, but I want to stay on my employer’s HDHP? Am I able to continue to fund my HSA?

Always check with your HR department before anyone on your family plan enrolls in Medicare. In most cases, you should be able to continue to fund your HSA. The family coverage will need to be changed to single coverage and the HSA funding limit will be reduced to the lower individual limit.

I started receiving Social Security retirement benefits before age 65. Now that I’m turning 65 next month, will I need to stop my HSA contributions?

Yes. If you have been receiving Social Security or Railroad retirement benefits for four months or more, you will automatically be enrolled in Part A Medicare at age 65 and can no longer contribute to your HSA.

I work for a company with fewer than 20 employees and have heard this may be an issue with both Medicare and my HSA. Is this true?

Yes. If your employer plan covers fewer than 20 employees, then Medicare becomes the primary payer for claims for those starting at age 65. Your employer plan becomes the secondary payer. This means that you will need to sign up for both Part A and Part B so that Medicare will pay their portion of your claims. Skipping enrolling in Part A and B will likely result in a Medicare late-enrollment penalty. You will pay 80% of your own outpatient expenses and your employer plan will only cover part of the remaining balance. You will also need to stop all contributions to your HSA.

Now that I’m well past 65 and have decided to retire, are there any potential issues involving my HSA contributions?

Potentially. Part A of Medicare provides six-month retroactive coverage when a retiree enrolls after age 65 (although coverage will not start prior to age 65). This means most enrollees must stop their HSA contributions six months prior to enrolling in Medicare. Due to certain complicated situations involving “testing periods,” an enrollee may need to stop HSA contributions for more than six months prior to enrollment beyond age 65.

Now that I’m retired and on Medicare, what can I do with the funds I have in my HSA?

Even though you cannot continue contributing to your HSA, you may continue to use those funds for medical expenses such as deductibles, copays, dental, vision and prescriptions.

Medicare rules involving HSAs can be complicated and the penalties may be substantial. Therefore, it is highly recommended that you speak with your HR department, tax advisor and one of our certified Medicare Advisors before you retire or sign up for ANY Medicare. That way, you can avoid any potential tax penalties or Medicare late-enrollment fees.

We are here to help you if you are:

  • Nearing eligibility for Medicare
  • Need a review of your current benefits
  • Interested in learning about long-term care options to help pay for custodial care

Desert Financial Insurance has been assisting thousands of retirees with their options for Medicare and long-term care planning for many years. We do it all at no-cost and no obligation!

We’re here to help Medicare or other long-term care options work for you.

Learn more about your HSA and Medicare. An appointment with one of our experienced insurance advisors is free!

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The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.