by Anne Pierce
As you approach 65, you are inundated with “Medi-scares”—mailings and phone calls telling you that if you do not enroll you will be penalized.
While this could happen, it’s important to understand your options and the implications behind your decision on whether and when to take Medicare.
One of the most complicated issues surrounding Medicare is having a Health Savings Account (HSA). An HSA is an account for individuals enrolled in high-deductible health plans (HDHPs) prior to Medicare.
An HSA is an account for individuals enrolled in high-deductible health plans (HDHPs) prior to Medicare.
An HSA works by collecting contributions from the covered individual, and the contributions are not taxed before or after use when used for qualified medical expenses.
We’ve put together an HSA cheat sheet for how to best handle your or your family member’s Medicare decision:
Having an HSA in general means that the contributions you make will not be taxed before you put money in the account, nor will it be taxed when taken out to be used on qualified medical expenses.
When you enroll in Medicare Part A or B, neither of those coverages qualify as an HDHP. Therefore, you will no longer be able to contribute to your HSA. '
The rules regarding HSA withdrawals over age 65 are also different than those when you are under 65.
However, you can continue to withdraw HSA money for most qualified health expenses.
This answer is purely circumstantial.
The following are reasons you would and wouldn’t want to delay Medicare coverage based around on having an HSA*:
You work for an employer with fewer than 20 employees or do not have creditable RX coverage. In this case, Medicare Parts A and B become primary and you need to sign up even though you are losing the HSA tax advantage.
You are retiring at age 65 and are collecting Social Security benefits. If you plan on drawing Social Security benefits, you will need to stop contributing to your HSA to do so.
You are not drawing your or your spouse’s Social Security benefits at this time. This will allow you to continue your HSA contributions and the accompanying tax advantages.
You wish to continue contributing to your HSA.
PLEASE NOTE: You must maintain all three of these qualifying events while over 65 in order to avoid Medicare’s penalty for delaying Parts A&B when you were first eligible:
If you delay enrolling in Medicare, make sure you know the date you will be enrolling in Medicare or take Social Security benefits ahead of time.
If you are older than 65 and still covered under you or your spouse’s active employer group coverage but plan on starting your Social Security benefits prior to retirement, understand that your Medicare Part A will be automatically backdated six months to when the Social Security benefits kick in. Based on this timing, you would need to prorate the HSA contributions for the year based on when your Part A coverage started.
To prorate your contribution, take the allowed contribution for the year (including any catch-up contribution) and divide it by 12, then multiply it by the number of months for which you can contribute.
For example, if you turn 65 in April, you can contribute January through March—three months. You would multiply your monthly prorated rate by three to get your maximum allowed contribution amount.
You’ll pay tax penalties if your HSA contributions and your Medicare enrollment overlap. The amount of penalty you’ll pay depends on the situation. Scenarios you might encounter include:
If you have any further questions or special circumstances surrounding your coverage that may need a little more help considering your Medicare or health insurance options, please reach out to the Medicare Supplement team at firstname.lastname@example.org.
email@example.com | 612.617.6131
Anne is a co-founder of the Medicare Supplement division at North Star, helping to simplify healthcare choices for Medicare-eligible individuals throughout Minnesota and Wisconsin.
Wednesday, May 12 | 11:00 AM to 12:00 PM CDT
Join North Star's Medicare Supplement division's founders Anne Pierce, Jeremiah Wente, and Chris Abbott for a free, no-obligation seminar discussing the basics of Medicare and how to navigate through your choices during your retirement.