FAQ on HSAs and Medicare

A Health Savings Account (HSA) is a tax-exempt account that works in conjunction with a High-Deductible Health Plan (HDHP) to allow participants to pay for out-of-pocket qualified healthcare expenses with tax-free dollars*.  Medicare is the federal health insurance program for: people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant).

If you’re eligible for Medicare and have an HSA, there are some things you need to know.

  1. Can I contribute to an HSA if I’m eligible for Medicare?

If you’re not enrolled in Medicare and are otherwise eligible to contribute to an HSA, you can continue to contribute to your HSA.

  1. When do I become eligible for Medicare?

Once you turn 65 and meet the requirements to qualify for Medicare Part A, you become Medicare-eligible. As long as you do not enroll in Medicare, you can still contribute to your HSA.

  1. Do I lose my HSA eligibility at 65?

No. You may open and contribute to an HSA at age 65 and older as long as you meet IRS eligibility requirements:

  • Participation in a High Deductible Health Plan (HDHP)
  • Not covered by Medicare/TRICARE
  • Not claimed as a dependent on another person’s tax return
  • Not covered by a prohibited plan such as through a spouse or other employer:
    • Coverage under a spouse’s non-HDHP medical plan
    • Coverage under a spouse’s general purpose Healthcare FSA or HRA
    • Any coverage that pays for expenses before your deductible is met

There may be other circumstances in which you are not eligible to contribute to an HSA.  Please review IRS Publication 969 for more information: IRS Publication 969.

  1. How am I enrolled in Medicare?

You become enrolled in Medicare by applying or being approved automatically. If you begin Social Security payments prior to age 65, you will be automatically enrolled in Medicare Part A when you turn 65. Once you are enrolled in any part of Medicare, you are no longer eligible to contribute to an HSA and must pro-rate your HSA contributions for the year you become enrolled. For more information on Medicare enrollment, refer to Medicare & You or call the Social Security Administration customer service center at 1-800-772-1213.

  1. What happens if I delay enrolling in Medicare?

Medicare entitlement may be delayed by delaying the receipt of Social Security benefits. If you are not automatically enrolled and do not enroll in Social Security when you are eligible, you can continue to contribute to your HSA. When you do sign up for Medicare Part A coverage, your coverage will start 6 months before you apply for Medicare, but no earlier than the first month you turn age 65.  Because the first month of Medicare entitlement will be retroactive for individuals who delay the commencement of Medicare Part A benefits, those individuals must use extra care when determining the amount of their contributions and may want to stop their HSA contributions in advance of enrolling for Medicare Part A. If you decide to enroll in Medicare after delaying it, you might consider ending contributions to your HSA at least six months in advance (or less based on your retroactive coverage when you actually enroll). Because Part A of Medicare provides up to six months of retroactive coverage upon enrollment, any contributions to your HSA made during the period of retroactive coverage are considered excess contributions and you may be charged a 6% excise tax penalty.  For more information on Medicare enrollment, refer to Medicare & You or call the Social Security Administration customer service center at 1-800-772-1213.

  1. How do I avoid paying an excise tax penalty if I contribute HSA contributions during the retroactive Medicare coverage period?

You may withdraw some or all of the excess contributions and avoid paying the excise tax if you meet the following requirements:

  • You withdraw the excess contributions by the due date of your personal tax return, plus extensions, for the year the contributions were made; and
  • You withdraw any income earned on the withdrawn contributions and include in “Other income” on your tax return for the year you withdraw the contributions and earnings.
  1. I’m no longer HSA-eligible. Can I make tax-free distributions for qualified expenses from my existing HSA account?

Yes. HSA eligibility relates to your ability to make contributions. If you have an existing HSA and are no longer eligible to contribute to the HSA, you may make tax-free distributions for qualified expenses for the rest of your life or until the account is depleted.

  1. If I have an HSA account but am no longer eligible to contribute because I’m enrolled in Medicare, can I reimburse myself for my Medicare premiums from my HSA account?

You can reimburse your own, your spouse’s, and any tax dependents’ qualified expenses tax-free from your HSA account. Once you enroll in Medicare, you can reimburse your own and your spouse’s Medicare premiums tax-free from your HSA account.

There are complex rules surrounding Medicare, HSAs, and Social Security. It is important for you to understand these plans and how they interact together with your group benefits in order to navigate successfully.  Please contact your personal legal, financial, or tax counsel for advice and refer to the government agency websites mentioned above for more information.

 * Most state tax laws align with federal laws in regard to HSAs, with a few exceptions. Certain states do not offer tax-free HSA contributions at the state level. Some tax interest, dividends, and capital gains within HSAs while others tax dividends and interest.

Please note:  This information is provided as of December, 2019.  This publication does not represent, and shouldn’t be interpreted as, a substitute for professional advice. Please consult your personal legal, financial, or tax counsel to discuss your personal financial situation and refer to IRS Publication 969.