Using HSAs with Medicare: What Beneficiaries and Agents Need to Know
Health Savings Accounts (HSAs) are a valuable tool for people with high-deductible health plans (HDHPs), allowing them to set aside pre-tax dollars for qualified medical expenses. However, once Medicare enters the picture, the rules change. For Medicare beneficiaries and the agents who guide them, it’s important to understand how using HSAs with Medicare works. There are important changes when Medicare begins, so educating your clients help them use those funds wisely.
Can You Contribute to an HSA While on Medicare
The short answer: no.
Once someone enrolls in any part of Medicare (Part A, Part B, or both), they are no longer eligible to make contributions to an HSA. Because Medicare is not considered a high deductible health plan, The IRS prohibits contributions after Medicare enrollment.
Key timing note:
- Many people are automatically enrolled in Medicare Part A at age 65 if they are already taking Social Security benefits. This means their HSA contribution eligibility ends immediately.
- If a person delays Medicare enrollment (and Social Security benefits) while still working and covered by an employer-sponsored HDHP, they can continue contributing to their HSA until Medicare coverage begins.
Watch a YouTube video about Medicare and employer coverage
Using HSA Funds After Enrolling in Medicare
While contributions must stop, the good news is that HSA funds remain available for future use. Beneficiaries can use those dollars tax-free on a wide range of expenses, including many costs associated with Medicare.
Eligible Medicare-related expenses include:
- Medicare Part A, Part B, and Part D premiums
- Medicare Advantage (Part C) plan premiums
- Out-of-pocket costs like deductibles, copays, and coinsurance
- Dental, vision, and hearing expenses not covered by Medicare
- Prescription drugs (both covered and not covered by Medicare)
Important restriction: Beneficiaries cannot use HSA funds to pay for Medigap (Medicare Supplement) plan premiums.
Tax Benefits of Using an HSA with Medicare
- Tax-free withdrawals: As long as beneficiaries use funds for qualified medical expenses, withdrawals are tax-free.
- Penalty-free withdrawals after age 65: Even if funds are used for non-medical expenses, the 20% penalty is waived after age 65. However, the IRS taxes those withdrawals as regular income.
This flexibility makes HSAs a powerful retirement planning tool—especially for covering health costs, which typically rise with age.
Guidance for Medicare Agents
For agents advising clients, it’s helpful to remember:
- Ask about employer coverage: If clients are still working past 65 and covered under an HDHP, delaying Medicare could allow them to continue building HSA savings.
- Review timing carefully: Enrolling in Medicare Part A retroactively (up to 6 months) can affect HSA contribution eligibility and may trigger penalties if excess contributions are made.
- Highlight the benefits of saved funds: Even if contributions stop, those HSA balances can play a big role in covering Medicare premiums and out-of-pocket costs.
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HSAs and Medicare don’t work together in the traditional sense; contributions must stop once Medicare begins. But the funds already in the account can provide significant financial relief for medical costs in retirement. For Medicare beneficiaries, understanding the rules ensures they maximize both their HSA and Medicare benefits. For agents, this knowledge is another way to bring clarity and value to client conversations.
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