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What is a health savings account (HSA)?

[x_blockquote cite=”Paola (Juneau, AK)” type=”left”]Dear Marci,
What is a health savings account (HSA)? Can I have an HSA and Medicare?[/x_blockquote]

Dear Paola,

A health savings account (HSA) is an account that works with a high deductible health plan (HDHP). Many people have an HSA through their current employer. If you have an HSA you can contribute to it on a tax-free basis and use those funds to pay for qualified health expenses as long as you meet certain IRS requirements.

If you have an HSA and you will soon be eligible for Medicare, it is important to plan ahead and understand how enrolling in Medicare will affect your HSA.

  1. You cannot be enrolled in Medicare Part A and/or B and contribute to your HSA. By law, people with any other health insurance, including Medicare, are not allowed to put money into an HSA. However, you may continue to withdraw money from your HSA. If you use the account for qualified medical expenses, including Medicare deductibles, premiums, and copays or coinsurances, it will continue to be tax-free.
  2. To avoid a tax penalty, stop HSA contributions six months before you decide to collect Social Security benefits. If you do not take Medicare when you first qualify, you must take special precautions if and when you do decide to collect Social Security benefits (either while working or when you retire). You should stop all contributions to your HSA up to six months before you collect Social Security. This is because when you apply for Social Security, Medicare Part A will be retroactive for up to six months (as long as you were eligible for Medicare during those six months). If you do not stop contributing to your HSA six months before you apply for Social Security, you may have a tax penalty. The penalty is because you cannot have contributed pre-tax dollars to the HSA while you had Medicare.

If you have an HSA through your current employer and are thinking of delaying Medicare enrollment, you should also consider if your employer plan will pay primary or secondary to Medicare, and therefore whether it is wise to delay Medicare.

Planning ahead can help you avoid penalties and gaps in coverage. You can speak with your employer’s benefits administrator about your situation and options.

– Marci

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