Facts about HSAs and Medicare

By: Carl Burlbaw

Each year from mid-October through early December, we are inundated with commercials about the Medicare open enrollment period. 

For those signing up for the first time, the process can be daunting, and for those who have a Health Savings Account (HSA), it can be particularly confusing. 

Here is a quick guide to help you get started.  

Birthday month

If you are one of the 10,000 people turning 65 today, happy birthday! Did you know you also became eligible for Medicare on the first day of this month? That is because your initial Medicare enrollment is tied to your birthday month.

Your initial enrollment period spans three months before, and after, your birthday month so you have seven months to get enrolled this year.

At 65, many people are still working and have employer health benefits which will be their primary insurance during active employment. If this is true for you, you may decide to defer enrolling in Medicare until after you retire. 

Pro tip: If you are still working at age 65, it is important to fill out the proper forms and provide proof of coverage at the time you decide to enroll in Medicare. This will prevent a late enrollment penalty that lasts in perpetuity. 

Health savings accounts

HSAs are tax-advantaged accounts that allow you to save and use pretax money for medical expenses. You can use HSA funds to pay for costs like copays, eligible health care, prescription drugs and various other things. 

There are special considerations with Medicare for those with an HSA. If you have an employer health insurance plan and an HSA, once you enroll in Medicare, you’re no longer eligible to contribute to the HSA without tax penalties.  The good news is that if you established an HSA before enrolling in Medicare, you can still use the funds from your HSA account.

Penalties and exceptions

There is no penalty for having an established HSA when you’re enrolled in Medicare. Since those on Medicare are not eligible to contribute to an HSA, there are tax consequences if you do, including a 6% excise tax charge on excess contributions. Once you’re enrolled in Medicare, existing HSA savings can be used to pay premiums for Medicare Parts A, B, C, and D, but they cannot be used for Medicare Supplement Insurance premiums.

More help

The Senior Source will be hosting Medicare open enrollment sessions this fall. Check the organization’s website for a calendar of events. Or for additional information and help with selecting a Medicare plan, contact The Senior Source at theseniorsource.org or 214-823-5700.

Carl Burlbaw, a leading expert on Medicare Exchange, has been with The Senior Source since 2014 and has served as the assistant director of its Elder Financial Safety Center since 2019. He has maintained his insurance license with the State of Texas since 2013 and specializes in advising older adults on the role that insurance plays in a person’s overall financial capacity.