Today we’re going to dive into the topic of HSA’s and Medicare. We’ll do this by answering three common questions surrounding HSA’s and Medicare. Let’s get started.
Question 1: What is an HSA?
HSA stands for Health Savings Account. This is different than a Health Reimbursement Account and a Flexible Spending Account. Basically, an HSA is a tax-advantaged medical savings account that allows you to set aside money for future medical expenses.
Every HSA is a qualified plan. One of the qualifiers of the HSA plan is that it has to be tied to a high deductible health plan (HDHP). The beauty of HSA’s is this: The money that you contribute to your HSA is pre-tax, meaning it’s not subject to federal income taxes and, in many cases, not subject to state income taxes.
Question 2: Can You Contribute To an HSA?
What this question is really asking is, once you go on Medicare, can you still contribute to an HSA? The answer is no, you cannot contribute to an HSA once you’re enrolled in Medicare. It doesn’t matter if you only enroll in Medicare A or enroll in both A and B. If you take any Medicare, you can no longer contribute to your HSA account. Now keep in mind, your HSA money is still yours, but no new contributions can go in.
At this point, many people with HSA’s ask if they have to enroll in Medicare Part A at 65. The answer is no, you do not. If you or your spouse are still working at 65 and are covered by an employer plan, then you do not have to take Medicare A or B yet. If you are retired or are not covered by a work plan, then you will have to take Medicare at 65.
However, if you wait until retirement to enroll in Part A (meaning you’ve continued to contribute to your HSA until retirement), Medicare is going to backdate your Part A once you enroll. Let’s look at an example of this.
The retirement age for many of you is 66 years and two months old. For some of you, your retirement age is 66 years and four months old. For our example, let’s say you’re going to work until full retirement age, and only once you retire will you get on Medicare. Let’s say you hit full retirement age in July 2022. Your Medicare Part B date will be July 2022. But your Medicare Part A date will be backdated six months from the day you enroll or set to the date you turned 65 (whichever came first).
So for our example, your Medicare Part A date will be January 1, 2022. So even though you waited to take Medicare until you retired, you should not make any contributions to your HSA account six months prior to enrollment since your Part A will be backdated to that date.
Question 3: How Can HSA Funds Be Used?
Once you’re retired and are on Medicare A and B, how can you use your HSA money? There are many different ways to use your HSA funds.
Part B Premiums and Deductible
First off, you can pay your Part B monthly premiums with your HSA money. While Medicare part A is completely free to anyone who has paid into Medicare for 40 quarters, Part B comes with a monthly premium. This year (2022) the Part B premium is $170.10 per month. If you’re on Social Security, the Part B premium comes directly out of your Social Security check. If not, they’ll bill you for it.
If you have an HSA account, you can pay your part B premium with your HSA money by either seeking reimbursement or by paying the direct bill.
Your HSA money can also be used to pay your Part B yearly deductible. This year’s Part B deductible is $170.10.
Part D Premiums and Deductible
You can also use your HSA to pay your Part D (drug plan) monthly premiums. Part D premiums typically range anywhere from about $13 to $80 a month, and you can use your HSA to cover that monthly expense. Part D drug plans also have yearly deductibles, so HSA funds can also be used for that.
Advantage Plan Copays
Another way you can use your HSA funds is if you get an Advantage plan and have to pay copays and coinsurance. Often, these copays and coinsurance expenses add up quickly, so using your HSA money is a great option.
Miscellaneous Medical
Another great way to use your HSA funds is miscellaneous medical expenses. This would be things like dental, vision, hearing aids, or hearing exams (some of the things Medicare may not cover).
Excess Charges
You can also use your HSA to pay excess charges. Some physicians accept Medicare patients but add 15 percent to the bill. Many plans make you responsible for this 15 percent excess charge, so again, your HSA can be a great way to cover those excess charges.
As you can see, most of your medical expenses can be covered by your HSA funds. There is one item, however, that you cannot pay out of your HSA. This item is the Supplemental plan premium. Many of you will buy Supplemental plans (also called Medigap policies), and while they are excellent plans, you cannot pay the premiums out of your HSA account.
Conclusion
HSA stands for Health Savings Account. Essentially, it is a tax-advantaged medical savings account that allows you to set aside money for future medical expenses.
Once you go on Medicare, you can no longer contribute to your HSA account. However, you can use the funds saved up in your HSA account to cover Part B and D premiums, deductibles, Advantage copays, and more.
We understand how difficult making the right Medicare decisions can be. To take the next step, watch our full course here, or schedule a free one-on-one call with a certified Medicare School Guide who can answer your questions, compare plans options, and even help you enroll. Click here to get started.