Can You Have an HSA and Medicare at the Same Time?

Health Savings Accounts (HSAs) and Medicare both serve as important tools for managing healthcare costs, but their interaction can be intricate. HSAs offer a tax-advantaged way to save and pay for medical expenses when paired with a high-deductible health plan (HDHP). Medicare provides health insurance coverage for individuals generally aged 65 or older, or those with certain disabilities. Understanding how these two systems work together is important to avoid unexpected financial consequences and to maximize healthcare savings.

Impact of Medicare Enrollment on HSA Contributions

Enrolling in Medicare impacts an individual’s ability to contribute to a Health Savings Account. Once enrolled in any part of Medicare—Part A (Hospital Insurance), Part B (Medical Insurance), Part C (Medicare Advantage), or Part D (Prescription Drug Coverage)—an individual is no longer eligible to make new contributions to an HSA. This rule applies regardless of whether the Medicare coverage is primary or secondary.

Medicare Part A enrollment has potential for retroactive coverage. If an individual delays enrolling in Medicare Part A past age 65, their coverage may be backdated up to six months, but not earlier than their 65th birthday. This means Part A coverage is considered active during those preceding months, disqualifying HSA contributions for that period. To prevent penalties, individuals should cease HSA contributions at least six months before their intended Medicare enrollment date or before applying for Social Security benefits, which often triggers automatic Part A enrollment.

Making contributions to an HSA after Medicare eligibility begins, or during a retroactive coverage period, can result in excess contributions. The Internal Revenue Service (IRS) imposes a 6% excise tax on these excess contributions. This tax applies annually for each year the excess amount remains in the account. Promptly removing excess contributions and any associated earnings before the tax filing deadline can help avoid these penalties.

Using Existing HSA Funds with Medicare

While new contributions to an HSA cease upon Medicare enrollment, existing funds within the HSA remain accessible and can be used tax-free for qualified medical expenses. These funds do not expire and can continue to grow tax-free, providing a resource for healthcare costs in retirement. This continued access allows individuals to use their accumulated savings to cover various out-of-pocket expenses.

HSA funds can be used for qualified medical expenses, as defined by IRS Publication 502. This includes costs for diagnosis, cure, mitigation, treatment, or prevention of disease. Individuals can use their HSA to pay for Medicare Part B premiums, Medicare Part D prescription drug premiums, and Medicare Advantage (Part C) plan premiums.

HSA funds can also cover Medicare deductibles, copayments, and coinsurance amounts for services covered by Medicare. Qualified long-term care insurance premiums, up to certain age-based IRS limits, are eligible expenses that can be paid from an HSA. However, HSA funds cannot be used to pay for Medicare Supplement (Medigap) plan premiums without incurring taxes and penalties.

HSA funds can be used to pay for the medical expenses of a spouse or tax-dependent, even if the HSA account holder is enrolled in Medicare. This flexibility extends the use of the HSA, allowing it to support the healthcare needs of the entire family. Keeping accurate records of all medical expenses and HSA distributions is recommended for tax purposes.

Navigating Specific Situations

Individuals who continue working past age 65 and are covered by an employer’s High-Deductible Health Plan (HDHP) can delay Medicare enrollment. For those working for employers with 20 or more employees, delaying Medicare Part A and B allows continued HSA contributions without incurring Medicare late enrollment penalties. To continue contributing to an HSA in this scenario, individuals must also postpone receiving Social Security retirement benefits, as collecting these benefits often triggers automatic Medicare Part A enrollment.

Delaying Medicare enrollment without qualifying employer coverage can lead to late enrollment penalties. For Medicare Part B, the monthly premium can increase for each full 12-month period an individual was eligible but did not enroll, with this higher premium lasting for the duration of their Part B coverage. Similarly, a late enrollment penalty for Medicare Part D is added to the monthly premium for as long as the individual has Part D coverage if they lacked creditable prescription drug coverage.

When one spouse is Medicare-eligible and the other is not, the Medicare-eligible spouse’s status does not disqualify the non-Medicare spouse from contributing to their own HSA. If the non-Medicare spouse is covered by an HDHP and meets all other eligibility criteria, they can continue to contribute to their HSA, potentially up to the family contribution limit. Eligibility depends on the individual’s own status, not that of their spouse.

Medicare Advantage (Part C) plans do not qualify as HDHPs compatible with HSA contributions. These plans have different cost-sharing structures that do not meet the high deductible requirements for HSA eligibility. Therefore, enrolling in a Medicare Advantage plan ends eligibility for new HSA contributions. While HSA funds can be used for COBRA premiums, having dual coverage with Medicare makes an individual ineligible to make new HSA contributions.