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Can I Use a Health Savings Account (HSA) with Medicare?

As a Colorado resident, you might be wondering what a Health Savings Account is and whether or not it can be used in conjunction with Medicare. A health savings account or HSA is an account that was created for employees with a high-deductible health plan (HDHPS). The funds that are contributed to an HSA do not get taxed when put into the account or when withdrawn as long as the funds are used to pay for any qualified medical expenses that you incur.

It is possible that your HSA will be overseen by your employer, but it can also be looked after by your bank, insurance company or credit union as well.

If you will be eligible for Medicare soon and you have an HSA, you need to understand how enrolling in Medicare will affect your account and how you can use it.

How Do HSAs Work with High-Deductible Health Plans?

Before you can qualify to put money into an HSA, you need to enroll in a high-deductible health plan, usually provided by your employer. HDHPs tend to have high deductibles that you will have to meet before you are able to receive any type of coverage from it.

What this means for you is, that you must pay in full for most of your health care coverage until that cost reaches your deductible for that year. Once the deductible is reached, the HDHP will cover your costs for the rest of the year.

Using an HSA Account with a High-Deductible Health Plan

When you use an HSA account with a high-deductible health plan, there are a few things you need to keep in mind. Once you enroll in Medicare, it will affect how you are able to use your HSA. For example, you can’t be enrolled in Medicare Part A and/or Part B and still contribute pre-tax dollars to your HSA.

In order to keep contributing to your HSA, you are not able to have any other type of health insurance other than an HDHP. On the month you are first eligible for Medicare, your account should be changed over to zero dollars a month in order to avoid any tax penalties.

You may be able to still withdraw money from your HSA once you enroll in Medicare in order to help pay for any medical expenses you may incur. These expenses can include deductibles, co-payments, premiums and co-insurances. If you use the account for any qualified medical expense, these funds will be tax-free.

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How to Avoid Tax Penalties

You can avoid any tax penalties by stopping all HSA contributions at least six months before you collect Social Security benefits. When you first apply for Social Security, Medicare Part A will be retroactive for up to six months – if you are eligible for Medicare for those six months, and if you don’t stop contributing to your HSA during this time period, you may face a tax penalty.

If you decide to delay in enrolling in Medicare and you have an HSA through your employer, you need to see if your employer will pay both the primary and secondary to Medicare. This will help in your decision whether or not to delay enrollment as it could mean you will lose all health care coverage.

Why Does Social Security Not Let You Contribute to Your HSA?

When you turn 65, the law requires anyone who is receiving any form of Social Security benefits to also enroll in the premium-free Part A of Medicare. This covers hospital expenses which ends up relating to Medicare’s ban on HSA contributions.

Since you can use your HSA as a secondary insurance plan in relation to your employer’s health care plan and it doesn’t charge premiums to those who qualify for Social Security benefits, it comes into conflict with Medicare’s Part A benefits.

What About Family Coverage?

If you have family coverage with your HSA, it’s possible that only one of you will become ineligible to contribute to it and payments may still be able to be made by the eligible spouse. The ineligible spouse, however, can no longer make any type of payments to the HSA. If the employee was the person receiving Medicare and has now become ineligible to contribute to their HSA, the eligible spouse must set up their own HSA and not contribute to the employee’s HSA.

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