Can You Have an HSA If You Are on Medicare?

Health Savings Accounts (HSAs) offer a tax-advantaged way to save for medical expenses, providing benefits like tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified healthcare costs. A common question arises about their compatibility with Medicare, particularly as individuals approach retirement age. While enrollment in Medicare generally prevents new contributions to an HSA, funds already accumulated in the account can still be utilized for eligible medical expenses, including certain Medicare costs.

Understanding HSA Contribution Eligibility

To contribute to a Health Savings Account, an individual must be covered by a High-Deductible Health Plan (HDHP). The HDHP must be the sole health insurance plan, excluding limited coverages like dental, vision, or specific disease policies. For 2025, an HDHP is defined by an annual deductible of at least $1,650 for self-only coverage or $3,300 for family coverage. The maximum annual out-of-pocket expenses, including deductibles, copayments, and coinsurance but not premiums, cannot exceed $8,300 for self-only coverage or $16,600 for family coverage in 2025.

Individuals must not be enrolled in Medicare. They also cannot be claimed as a dependent on someone else’s tax return. For 2025, the maximum HSA contribution limit is $4,300 for self-only coverage and $8,550 for family coverage. Those aged 55 and older can contribute an additional $1,000 annually as a catch-up contribution.

Impact of Medicare Enrollment on HSA Contributions

Enrollment in any part of Medicare (Part A, B, C, or D) disqualifies an individual from making new HSA contributions. This is because Medicare is considered other health coverage that is not an HDHP. The ability to contribute to an HSA ceases on the first day of the month Medicare coverage begins.

Medicare Part A enrollment impacts individuals even if they don’t actively sign up. Many individuals are automatically enrolled in Medicare Part A upon turning 65 if they are already receiving Social Security or Railroad Retirement Board benefits. Even if someone delays actively enrolling in Medicare, applying for Social Security benefits at or after age 65 can trigger automatic, retroactive enrollment in Medicare Part A.

The ‘retroactive’ or ‘lookback’ rule for Medicare Part A is important. If an individual applies for Medicare Part A after turning 65, coverage can be effective up to six months prior to the application date, but not earlier than the month they turned 65. This retroactivity means that if an individual contributed to an HSA during this lookback period, those contributions would be considered excess and subject to a 6% excise tax. For example, if someone turns 65 in January, continues HSA contributions through June, and then enrolls in Medicare in July, Medicare Part A coverage could retroactively start in January, nullifying HSA eligibility for those months.

Therefore, individuals must stop all HSA contributions, including employer contributions, at least six months before their anticipated Medicare enrollment date or the start of Social Security benefits, whichever comes first. This proactive measure helps avoid potential tax penalties on contributions made during a period of retroactive Medicare coverage.

Using Your HSA Funds After Medicare Enrollment

Even after Medicare enrollment prevents further contributions, funds already accumulated in an HSA remain available and can be used for qualified medical expenses. HSAs do not have a “use it or lose it” provision, allowing the funds to continue growing tax-free.

Qualified medical expenses that can be paid tax-free from an HSA include costs like deductibles, copayments, and coinsurance for Medicare plans. HSA funds can also be used to pay for certain Medicare premiums, specifically Medicare Part B, Part D, and Medicare Advantage (Part C) plan premiums. However, HSA funds cannot be used to pay for Medigap (Medicare Supplement Insurance) premiums.

If funds are withdrawn from an HSA for non-medical expenses before age 65, they are subject to income tax and a 20% penalty. However, after age 65, the 20% penalty for non-medical distributions no longer applies. While these distributions become subject to ordinary income tax, similar to withdrawals from a traditional Individual Retirement Account (IRA), they offer flexibility for other expenses. Upon the account holder’s death, HSA funds can be transferred to a beneficiary, with specific tax implications depending on the relationship.

Specific Scenarios for HSA and Medicare

Individuals continuing to work past age 65 may have options to delay Medicare enrollment and continue HSA contributions. If an individual is covered by an employer-sponsored HDHP and that employer has 20 or more employees, they can delay Medicare Part B without penalty. This allows them to continue making HSA contributions until they retire or lose that employer-sponsored coverage.

When one spouse is enrolled in Medicare and the other is not, the non-Medicare spouse can still be eligible to contribute to an HSA if they meet all the requirements. If the eligible spouse is covered by a family HDHP, they can contribute up to the family maximum contribution limit. The funds in the HSA can then be used for the qualified medical expenses of both the eligible spouse and the Medicare-enrolled spouse.

COBRA continuation coverage can also interact with HSA eligibility. If the COBRA plan is a qualified HDHP, an individual can continue to contribute to their HSA. HSA funds can also be used to pay for COBRA premiums, which is one of the few instances where health insurance premiums are considered a qualified medical expense for HSA purposes. If the COBRA coverage is not an HDHP, new HSA contributions would cease, though existing funds could still be used.