Social Security, Medicare, and HSAs
If your employer health plan is a health savings account (HSA) paired with a high-deductible health plan (HDHP), you may have a problem when you turn 65.
Why? Because once you enroll in Medicare at 65, you (or your employer) may no longer contribute to your HSA. That's just a rule. I know what you're thinking:
"Can I simply not enroll in Medicare at 65? That would allow me to stay on my employer plan and keep those HSA contributions flowing to build up tax-free money for future medical expenses."
The answer is: probably not.
Social Security and Part A
Certain circumstances require Medicare enrollment. One is if you are receiving Social Security; if you file for Social Security and are 65 or older, you must enroll in Medicare Part A. Section HI00801.002 of the SSA Program Operations Manual System (POMS) states:
"Individuals entitled to monthly benefits which confer eligibility for HI may not waive HI entitlement. The only way to avoid HI entitlement is through withdrawal of the monthly benefit application. Withdrawal requires repayment of all RSDI and HI benefit payments made."
If you are planning to apply for Social Security retirement, spousal, or survivor benefits, know that you will be automatically enrolled in Medicare Part A—retroactive six months if you are 65½ or older—and there can be no HSA contributions for the period of time you have Part A. If contributions have already been made, they must be backed out to avoid a 6% over-contribution penalty.
Other Health Insurance Options
Since Medicare Part A covers hospitalizations only, and since you will no longer be eligible for the HSA/HDHP plan offered by your employer, you will need other health insurance to cover doctor visits, lab work, procedures, prescription drugs, etc.
You could ask your employer if there is another type of plan that does not involve an HSA. You might also enroll fully in Medicare (Parts B and D) and seek supplemental insurance to fill in the gaps. Because the government heavily subsidizes it, Medicare may be a better plan for your needs.
Does The Plan Cover Fewer Than 20 Employees?
Another circumstance that requires you to enroll in Medicare at 65 is if your employer's group plan does not cover 20 or more employees; in that case, you must enroll in Medicare at 65.
"What if I don't enroll at 65?"
In that case, you may not have health insurance. For people 65 and older, plans covering fewer than 20 employees pay secondary to Medicare. If you go to the doctor, they will first submit the bill to Medicare; if you are not enrolled in Part B, Medicare will not pay. If Medicare doesn't pay its 80% share of the bill, your health plan may not pay its share either. Nobody pays.
Additionally, there are late enrollment penalties for enrolling in Part B after age 65 unless you're in an employer group plan that covers 20 or more employees.
When You Can Keep Your HSA After Age 65
You can keep your HSA after age 65 if:
A) your employer's HSA/HDHP plan covers 20 or more employees
B) you are not receiving Social Security
If you meet these criteria, you are not required to enroll in Medicare; you can stay on the HSA/HDHP and continue to have HSA contributions made on your behalf. Do be aware that if you enroll in any part of Medicare, those HSA contributions will stop.
Additionally, be aware that the high-deductible health plan paired with your HSA may not offer creditable drug coverage as defined by Medicare. If it doesn't, you may have to pay a late-enrollment penalty when you eventually do enroll in Medicare Part D.
Keep HSA for Spending
Even if Medicare enrollment disallows further HSA contributions, you can still use your HSA to pay for qualified medical expenses in retirement, including your Part B premiums.
We recommend that everyone turning 65 call the Social Security Administration (800-772-1213), explain their current health insurance situation, and ask if they need to enroll in Medicare. Additionally, it pays to explore all your healthcare options; even if you are not required to enroll in Medicare, you may want to.
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