Health savings accounts (HSAs) have been around since 2003, but many people remain unfamiliar with them. An HSA allows an individual to use untaxed savings to pay their own individual health insurance costs as well as out-of-pocket expenses for group health plans. Both individuals and employers can contribute to these accounts up to a maximum amount specified by the IRS.
HSAs offer many advantages, but they don’t mix with certain types of federal programs and benefits. For example, if you are enrolled in Medicare Parts A or B, or if you file for Social Security benefits after age 65, you can’t make contributions to an HSA.
Medicare and HSAs
Medicare is health insurance provided by the federal government. Although there are several ways to qualify for Medicare, the program is most closely associated with people over age 65.
The different parts of Medicare coverage are as follows:
- Part A. Hospital insurance
- Part B. Medical insurance
- Part C. Medicare advantage plus, which allows Medicare recipients to receive health benefits through a private health insurance company
- Part D. Prescription drug coverage
For a more detailed breakdown on Medicare coverage, visit Medicare.gov.
IRS rules prohibit people enrolled in Medicare Parts A or B from contributing to an HSA. This is because a person with an HSA must also have health insurance that qualifies as a high-deductible health plan (HDHP) and can receive no other health coverage apart from the HDHP. The IRS counts Medicare Parts A and B as health coverage, but not as an HDHP. Thus, individuals who continue making contributions to an HSA after Medicare coverage begins risk IRS penalties.
The good news is that you can continue to make withdrawals from an HSA after you begin receiving Medicare benefits—you just can’t put more money into your account.
Social Security and HSAs
Social security retirement benefits can also impact your ability to make contributions to an HSA.
Under federal law, individuals age 65 and older are automatically enrolled in Medicare Part A upon filing for retirement benefits through the Social Security Administration. The only way to opt out of Medicare Part A is to stop your Social Security payments.
This automatic enrollment is also triggered even if you delay your Social Security benefits past age 65 for purposes of increasing your monthly retirement benefit. Furthermore, because the Social Security Administration makes retirement benefits retroactive for six months prior to an individual’s application, it’s important to stop making contributions to your HSA at least six months before you apply for Social Security.
It’s important for Individuals who are contributing to an HSA to know there are interactions between HSAs and social security and Medicare. We recommend you consult a broker or financial advisor to understand how and when you stop contributing to an HSA.
This post was originally published on February 16, 2017. It was last updated December 14, 2020.