www.aarp.org/learnmedicare
Medicare and Health Savings Accounts (HSAs )
What is Medicare?
Medicare is a federal government health insurance program for U.S. citizens and
many permanent legal residents age 65 and older. It also covers some younger
people with disabilities or End-Stage Renal Disease. Once you join, it provides
coverage for the rest of your life.
Medicare enrollees can choose between two options – Original Medicare or Medicare Advantage.
Original Medicare has three forms of coverage:
1
Part A:
This covers inpatient hospital
stays and also limited amounts
of inpatient rehabilitation
services oered at skilled
nursing facilities.
Part B:
This covers doctors’ visits
and other outpatient care,
plus ambulance services,
some medical equipment
and preventive health care
aimed at keeping you from
getting sick.
Part D:
This helps cover the cost
of prescription drugs, both
generic and brand-name.
What is an HSA?
Health Savings Accounts (HSAs) are accounts for
individuals with high-deductible health plans
(HDHPs). Funds contributed to an HSA are not
taxed when put into the HSA or when taken out,
as long as they are used to pay for qualied medical
expenses. Your employer may oversee your HSA, or
you may have an individual HSA that is overseen by
a bank, credit union, or insurance company.
If you have an HSA and will soon be eligible for
Medicare, it is important to understand how
enrolling in Medicare will aect your HSA.
How does an HSA work?
In order to qualify to put money into an HSA,
you must be enrolled in a high-deductible
health plan. HDHPs have large deductibles that
members must meet before receiving coverage.
This means HDHP members pay in full for
most health care services until they reach their
deductible for the year. Aerwards, the HDHP
pays a portion of the cost and the member pays
a portion of the cost, such as a copayment.
Medicare Advantage is also known as Part C. This is an alternative to original Medicare parts A and B that
allows you to choose to receive all of your Medicare health care benets through a plan from a private insurer.
Medicare and Health Savings Accounts (HSAs )
How does an HSA
aect my Medicare
enrollment
decisions?
If you enroll in Medicare Part A and/or B,
you can no longer contribute pre-tax dollars
to your HSA. This is because to contribute
pre-tax dollars to an HSA you cannot have
any health insurance other than an HDHP.
The month your Medicare begins, your
account overseer should change your
contribution to your HSA to zero dollars
per month. However, you may continue to
withdraw money from your HSA after you
enroll in Medicare to help pay for medical
expenses, such as deductibles, premiums,
copayments, and coinsurances. If you use
the account for qualified medical expenses,
its funds will continue to be tax-free.
Should I delay Medicare
enrollment if I have an HSA?
Whether you should delay enrollment in
Medicare so you can continue contributing to
your HSA depends on your circumstances.
• If you work for an employer with fewer
than 20 employees, you may need Medicare
in order to have primary insurance, even
though you will lose the tax advantages of
your HSA. This is because health coverage
from employers with fewer than 20
employees pays secondary to Medicare.
If you work at this kind of employer and
fail to enroll in Medicare, you may have
little or no health coverage because your
health plan does not have to pay until after
Medicare pays.
• If you work for an employer with 20 or more
employees, your job-based insurance pays
primary to Medicare. If you have primary
insurance from work, you may choose to
delay Medicare enrollment if you work at this
kind of employer and continue putting funds
into your HSA.
Note: In either case, you have access to the Part B
Special Enrollment Period (SEP) when you lose
coverage or retire.
www.aarp.org/learnmedicare 2
www.aarp.org/learnmedicare
If I delay Medicare enrollment,
how should I time my
enrollment in the future?
Start thinking about Medicare enrollment
at least six months in advance of when you
want your Medicare coverage to begin. You
need to stop contributing to your HSA at least
six months before you do plan to enroll in
Medicare. This is because when you enroll in
Medicare Part A, you receive up to six months
of retroactive coverage, not going back farther
than your initial month of eligibility. If you do
not stop HSA contributions at least six months
before Medicare enrollment, you may incur a
tax penalty.
Once you have stopped making HSA contributions six
months in advance, you should then plan to enroll in
Medicare one or two months before you want your
Medicare coverage to start.
If you choose to delay Medicare enrollment because
you are still working and want to continue contributing
to your HSA, you must also wait to collect Social
Security retirement benets. This is because most
individuals who are collecting Social Security
benets when they become eligible for Medicare
are automatically enrolled into Medicare Part A. You
cannot decline Part A while collecting Social Security
benets. The takeaway here is that you should delay
Social Security benets and decline Part A if you wish
to continue contributing funds to your HSA.
If you require further counseling around HSAs, you
should consult a tax professional.
3
Medicare and Health Savings Accounts (HSAs )
Resources
www.aarp.org/learnmedicare
AARP:
AARP Medicare Enrollment Guide
www.aarp.org/learnmedicare
877-634-8213
A step by step guide to help you navigate
Medicare enrollment
AARP Live and On Demand Webinars
www.aarp.org/medicareemployer
Free webinars to help you explore how the
program works, how and when to enroll,
your menu of choices, how much it costs
and where to get help
Medicare.gov
www.medicare.gov
800-633-4227
The oicial US government website for
Medicare oering helpful information,
useful tools and more
Medicare Rights Center
https://www.medicarerights.org
800-333-4114
A national, not-for-prot consumer service
organization and reliable, independent
source of Medicare information
State Health Insurance Assistance
Program (SHIP)
www.shiphelp.org
877-839-2675
A resource for local Medicare help,
providing you with trusted, unbiased,
one-on-one counseling and assistance
4
Medicare and Health Savings Accounts (HSAs )
For help understanding Medicare enrollment decisions: