Effects of Medicare on HSA Eligibility

Effects of Medicare on HSA Eligibility

by Clarke & Company Benefits Posted on: February 3, 2015Categories: HR & Compliance   

At age 65, you become eligible for Medicare and may be automatically enrolled. Enrolling in Medicare ends your HSA eligibility in one of two ways:

• If Medicare is your only health insurance, you are no longer eligible to contribute to an HSA because Medicare is not an HDHP.
• If you have Medicare as secondary coverage in addition to an employer-sponsored HDHP, you will also lose HSA eligibility because you have “other coverage.”

When you turn 65 and begin Medicare coverage, you lose HSA eligibility on the first day of that month. For example, if your birthday is April 19, you are no longer eligible to contribute to an HSA as of April 1. For the months prior to your birthday, you are still eligible for an HSA (assuming you have an HDHP). Your maximum contribution is determined by adjusting the HSA maximum in accordance with how many months of the year that you were eligible. For example, if you turn 65 in April, you were eligible for the first three months of the year. You can then contribute 3/12 of the HSA annual contribution maximum.

Although you are only eligible to contribute for the months preceding your 65th birthday and Medicare enrollment, you typically have until April 15 of the following year (the tax filing deadline) to actually put the money in the HSA.

If you reach age 65 and have an employer-sponsored HDHP, you must avoid Medicare enrollment if you would like to remain eligible for your HSA. This option is likely only feasible if your health plan is through an employer that has 20 or more employees; if you work for a small employer with fewer than 20 employees, your employer-sponsored plan will become secondary to Medicare once you turn 65. In addition, if you don’t enroll in Medicare Part A when you’re first eligible, you may have to pay a penalty in the form of a higher Medicare premium for a period of time, once you do enroll in Medicare.

Larger employers’ plans continue to pay primary whether or not you have Medicare. Therefore, if you work for an employer that has 20 or more employees, you can decline Medicare and continue your employer-sponsored HDHP as long as you are also not accepting Social Security benefits. If you are receiving Social Security retirement benefits, you will be automatically enrolled in Medicare at age 65 and lose your eligibility to contribute to an HSA.