Can I Have a Health Savings Account With Medicare?

Health Savings Accounts (HSAs) and Medicare are valuable tools for managing healthcare costs. An HSA provides a tax-advantaged way to save and pay for medical expenses, while Medicare offers federal health insurance primarily for individuals aged 65 or older. Specific rules govern their coexistence, particularly concerning eligibility for contributions.

Understanding HSA Eligibility Requirements

A Health Savings Account (HSA) is a tax-advantaged savings account for healthcare expenses. To contribute, individuals must be covered by a High Deductible Health Plan (HDHP) that meets specific Internal Revenue Service (IRS) criteria. For 2025, an HDHP must have a minimum deductible of at least $1,650 for self-only coverage or $3,300 for family coverage. The plan’s annual out-of-pocket maximums, which include deductibles, copayments, and coinsurance but not premiums, cannot exceed $8,300 for self-only coverage or $16,600 for family coverage.

Individuals cannot be covered by any other non-HDHP health insurance, such as Medicare or TRICARE, or be claimed as a dependent on someone else’s tax return. They also cannot be enrolled in a general-purpose Health Flexible Spending Arrangement (FSA) or Health Reimbursement Arrangement (HRA) alongside an HSA, as these are considered other health coverage. An exception exists for Limited-Purpose FSAs or HRAs, which restrict coverage to dental and vision expenses until the health plan deductible is met, allowing them to be paired with an HSA.

Medicare’s Impact on HSA Contribution Eligibility

Enrolling in Medicare significantly impacts an individual’s ability to contribute new funds to an HSA. Once an individual is enrolled in any part of Medicare (Part A, Part B, Part C, or Part D), they are no longer eligible to make new contributions. This rule exists because Medicare is considered “other health coverage” by the IRS, which disqualifies individuals from continuing HSA contributions, even if they maintain an HDHP.

The timing of Medicare enrollment, particularly Part A, is a crucial detail. Many individuals receiving Social Security benefits are automatically enrolled in Medicare Part A when they turn 65. This automatic enrollment can be retroactive, meaning Part A coverage may begin up to six months before the individual’s application month, though not earlier than the month they turn 65. Any HSA contributions made during this retroactive period would be considered excess contributions, subject to penalties. Even enrollment in premium-free Medicare Part A alone is sufficient to end HSA contribution eligibility.

Managing Your HSA During Medicare Enrollment

Given Medicare’s retroactive enrollment rules, it is important to stop HSA contributions before Medicare coverage begins. Individuals should communicate with their employer or HSA administrator to cease payroll deductions for HSA contributions in advance of their anticipated Medicare start date. This proactive step helps prevent unintended excess contributions.

Continuing to contribute to an HSA after Medicare coverage begins can lead to tax penalties. Any amount contributed beyond the eligible limit is considered an excess contribution and is subject to a 6% excise tax for each year it remains in the account. This excise tax applies annually until the excess amount is corrected. To avoid this penalty, individuals can withdraw the excess amount and any earnings attributable to it by the tax filing deadline for the year the contribution was made. The IRS Form 5329 is used to report and calculate these penalties.

Using HSA Funds After Medicare Coverage Begins

While new contributions to an HSA are not permitted once Medicare coverage begins, the funds already accumulated in the account remain available. Individuals can continue to use their existing HSA balance tax-free for qualified medical expenses, even after enrolling in Medicare. This allows HSA funds to serve as a valuable resource for healthcare costs in retirement.

Qualified medical expenses that can be paid with HSA funds include Medicare Part B, Part C (Medicare Advantage), and Part D premiums, as well as any deductibles, co-pays, and co-insurance associated with Medicare. It is important to note that HSA funds cannot be used to pay for Medigap (Medicare Supplement) policy premiums. Other eligible expenses include prescription drugs, dental care, vision care, and long-term care insurance premiums, though limits apply to long-term care premiums based on the individual’s age. After age 65, HSA funds can be withdrawn for any purpose without the 20% penalty, though withdrawals for non-qualified expenses would be subject to income tax.