Health Savings Accounts (HSA) have become very popular for those who have high-deductible health plans because of all of the benefits that it offers.
Healthcare savings accounts can be a great tool to manage out of pocket costs. Unfortunately, Medicare recipients are not eligible to participate in Health Savings accounts. There is however a bipartisan bill in Congress that may change that.
The bill in the House to change contribution rules would also eliminate two other benefits Medicare beneficiaries with HSA money currently can take advantage of.
The Health Savings for Seniors Act was introduced this month in the House. This bipartisan bill revives past 2019 legislative efforts to let individuals on Medicare contribute to health savings accounts, which Medicare beneficiaries currently cannot do.
Unfortunately, many people who have HSA accounts established are not aware that they cannot continue to fund the accounts past enrollment in Medicare.
At the end of 2021 there were 32 million HSA accounts. Contribution limits for 2022 are limited to $3650 for an individual and $7300 for family coverage. Individuals age 55 years or older can contribute an additional $1,000 per year.
HSA’s have a triple tax benefit! Contributions are tax deductible, earnings are tax-free, and withdrawals are tax free to the extent that any withdrawals are used to cover qualified medical expenses. According to the Kaiser Family Foundation approximately 28% of workers are enrolled in this type of plan.
Again, you can only enroll if you have a high-deductible health care plan. Medicare coverage does not fall into that category. So what do you do if you currently have money in one of those accounts and you are 65 years old or older? Currently medicare beneficiaries are permitted to use their HSA funds to pay for medical expenses, but cannot set up a new HSA or continue to contribute to one.
If you are still working and are Medicare age you can choose to to sign up for Medicare at age 65 and continue to use your employer’s health plan alongside Medicare Part A and or Part B. If that employer plan is a high deductible plan with a HSA, they can continue to make pre-tax contributions to the HSA account only if you delay signing up for Medicare altogether.
Because many people are continuing to work beyond age 65 and more and more employers are offering high-deductible plans, many Medicare eligible people are finding the rules confusing.
For 2022, high-deductible health plan deductibles are at least $1,400 for individual or $2,800 for family coverage with a maximum out-of-pocket costs (excluding premiums) of no more than $7,050 for individual plan coverage and $14,100 for family plan coverage. This excludes all out-of-network costs.
Contribution limits for HSA accounts for 2022 are limited to $3650 for an individual and $7300 for family coverage. Individuals age 55 years or older can contribute an additional $1,000 per year.
Medicare does have something similar to the HSA called the MSA, (Medical Savings Accounts). However, they are not broadly used. One reason for this may be that MSA plans don't include part D coverage for prescriptions. This is a huge need for seniors. According to the Kaiser Family Foundation, in 2019 only 5,600 beneficiaries in health plans used MSA accounts.
MSA’s are paired with a high-deductible Medicare Advantage Plan which are chosen by some beneficiaries, however, the individual cannot contribute to the MSA. The insurer that offers the plan makes the contributions. This amount can vary from year to year and the beneficiary can make tax-free withdrawals from the account to pay for medical expenses.
As usual, it’s currently uncertain when this bill will come up for vote. As we all know, there are so many other matters taking precedent as of now. The 2019 version of the measure never made it out of committee.
In the meantime, for those of you who do have HSA’s, and are nearing Medicare age or are Medicare age, still working or not, be aware of the rules.
about the author
Diahanna is a HealthTree Coach specializing in financial help for blood cancer patients. As a professional financial consultant and former caregiver of her husband who was diagnosed with multiple myeloma, Diahanna perfectly understands the financial issues facing blood cancer patients.