Some people have high deductible health plans (HDHPs) that are generally accompanied by health savings accounts (HSAs). The funds in these accounts can go toward eligible medical expenses.

When a person enrolls in Medicare, their insurance landscape often changes. This is especially true if they previously had an HDHP that came with a health savings account (HSA).

The Internal Revenue Service (IRS) has specific rules on the coexistence of an HSA and Medicare for a person who qualifies for both.

Knowledge of how one impacts the other can result in greater cost-savings and fewer tax penalties.

This article will look at HSAs, as well as the ways HSAs and Medicare can work together.

We may use a few terms in this piece that can be helpful to understand when selecting the best insurance plan:

  • Deductible: This is an annual amount that a person must spend out of pocket within a certain time period before an insurer starts to fund their treatments.
  • Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
  • Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.

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An HSA stands for a health savings account. People who have HDHPs will often utilize HSAs as a way to save money on healthcare expenses.

HDHPs are those that usually cover preventive health services and have a high deductible of at least $1,400 for an individual or $2,800 for a family, according to Healthcare.gov.

However, many HDHPs have much higher deductibles because a person can contribute to their HSA on a pre-tax basis. An employer can also contribute to an HSA, and the contribution does not count toward a person’s income, meaning they will not be taxed.

A person with an HSA can use the funds to pay for healthcare expenses, including deductibles, copayments, and coinsurances.

An HSA is not the same as a flexible spending account (FSA) or medical savings account (MSA). These are different account types related to insurance.

When a person enrolls in Medicare, they can no longer contribute to their HSA and enjoy the benefits of contributing non-taxed income and earning non-taxed interest.

Even though contributions would no longer be possible, individuals may keep their HSA and use it to pay for Medicare-related expenses.

Some people will contribute a significant amount to their HSA in preparation for their retirement. When they retire and start to receive Medicare benefits, they can then use the HSA to pay for health expenses.

A person can use their HSA to pay some Medicare premiums. This includes paying for Medicare Part B and Medicare Part D. A person cannot currently use their HSA to pay for Medigap premiums.

If a person has their Medicare premiums automatically deducted from their Social Security benefits, they can reimburse themselves by withdrawing the equivalent amount from their HSA.

Most HSAs have online capabilities where a person can automatically deduct the expense or request a check for the reimbursement amount.

A person contributes to an HSA on a pre-tax basis. The government limits how much a person can put in an HSA. For 2020, these were up to $3,550 for an individual and $7,100 for a family.

If a person does not use their HSA in a year, the funds can roll over into the next year.

The HSA can earn interest, and the government will not tax a person on interest earned. Also, as long as a person uses the funds to pay for qualifying healthcare expenses, they will not pay tax on removing the funds.

When a person has an HDHP, they can estimate that they may need to pay thousands of dollars before their insurance plan fully covers them.

The HSA is a way to save money by not paying taxes on earnings and accruing interest from the HSA until they meet their deductible.

If a person finds they do not meet their high deductible for the year, yet contributed the maximum amount to their HSA, the money can roll over and keep earning interest.

When a person retires, and they have money in their HSA, they can use this money to help pay for Medicare expenses.

A person can have an HSA that they no longer contribute to, and have Medicare at the same time.

If an individual contributes to an HSA and has Medicare simultaneously, they will usually pay tax penalties on their HSA contributions. This is because an HSA is for a person with an HDHP, and Medicare is a different type of coverage, not an HDHP. Therefore, a person cannot contribute to the HSA while having Medicare.

Some people opt to wait to enroll in Medicare and keep their HDHP and their HSA. This is allowed, providing a person has healthcare coverage.

Exception

A person must have Medicare Part A to receive Social Security benefits. Therefore, if a person wants to receive Social Security benefits, they cannot continue contributing to their HSA.

Some people may choose to delay their enrollment in Medicare and continue their HDHP and HSA.

This is often the case when a person is still working and receives health insurance from their employer.

At this time, a person can delay their Medicare enrollment, and the drawing of their Social Security benefits, until their employer coverage comes to an end.

Important information

When a person has an HSA and is 6 months away from signing up for Medicare, they should ideally stop contributing to their HSA.

This is because when an eligible person who has deferred Medicare then enrolls, their Medicare benefits are retroactive for up to 6 months.

If a person has not stopped contributing to their HSA 6 months before they switch to Medicare, they may have to pay taxes on their HSA contributions and earned interest during this time.

A health savings account (HSA) can be a part of a high deductible health plan (HDHP). They allow a person to save on healthcare costs as the money paid into the account, as well as the interest earned, is tax-free.

If a person begins to take Social Security and Medicare benefits, they can no longer contribute to their HSA. However, they can still use the HSA funds to pay for qualified medical expenses without paying taxes.

A person can contact Medicare at 800-MEDICARE (800-633-4227) if they have a specific question about how Medicare and HSAs work together.

The information on this website may assist you in making personal decisions about insurance, but it is not intended to provide advice regarding the purchase or use of any insurance or insurance products. Healthline Media does not transact the business of insurance in any manner and is not licensed as an insurance company or producer in any U.S. jurisdiction. Healthline Media does not recommend or endorse any third parties that may transact the business of insurance.