If you are eligible for Medicare and also have an HSA, here are some things you need to know.
What is Medicare?
Medicare is a federal health insurance program for adults aged 65 and older, certain younger people with disabilities, and those with End-Stage Renal Disease. There are four parts to Medicare:
- Part A. Covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home healthcare.
- Part B. Covers certain doctors’ services, outpatient care, medical supplies, and preventative services.
- Part C. Offered by a private company that contracts with Medicare to provide you with all Part A and Part B services and (usually) prescription drug coverage.
- Part D. Adds prescription drug coverage to Original Medicare, some Medicare Cost Plans, some Medicare Private-Fee-for-Service Plans, and Medicare Medical Savings Account Plans. These plans are offered by insurance companies and other private companies approved by Medicare.
What is an HSA?
A Health Savings Account, or HSA, is a tax-advantaged benefit account that allows people who are enrolled in a qualified High Deductible Health Plan (HDHP) to make tax-free contributions to a medical savings account. HSAs are owned by the participant who uses the funds to pay for eligible medical expenses. Distributions from the HSA for eligible expenses are tax-free. In addition, the owner earns tax-free interest and investment income on the HSA balance.
Once the HSA owner reaches age 65, they can use the account as a supplemental retirement fund. The HSA can continue to be used for eligible medical expenses, or spent on other expenses without penalty. However, if used for non-eligible expenses, those distributions are taxed as income.
Medicare and HSAs
For Medicare and HSAs, there are a few restrictions. To contribute to an HSA, a person must be enrolled in an HDHP. However, when an HSA owner’s Medicare coverage begins, he or she can no longer contribute to the HSA. Keep in mind, though, that the remaining HSA balance is available for other out-of-pocket medical expenses.
Editor’s Note: Changes on the horizon? As of October 2021, the Biden administration is proposing a “human infrastructure” package. Among other provisions, the package features a number of items relevant to Medicare-eligible employees and HSA account owners, including:
- Lowering the Medicare eligibility age to less than 65
- Expanding Medicare coverage for hearing aids, dental and vision expenses
- Taking steps to lower the cost of prescription drugs for all Americans
DataPath, Inc. creates cloud-based, all-in-one HSA management solutions for third party administrators.