How Health Savings Accounts complicate life for Medicare enrollees

Health Savings Accounts (HSAs) are surging in popularity – and that can lead to some complications for older workers who enroll in Medicare.

HSAs are offered to workers enrolled in high-deductible health insurance plans. The accounts are used primarily to meet deductible costs; employers often contribute and workers can make pretax contributions up to $3,350 for individuals, and $6,750 for families; the dollars can be invested and later spent tax-free to meet healthcare expenses.

HSAs-cropTwenty-four percent of U.S. workers were enrolled in high-deductible health plans last year, according to the Kaiser Family Foundation – and 15 percent of them were in plans coupled with an HSA. That compares with 6 percent using HSA-linked plans as recently as 2010. Assets in HSA accounts rose 25 percent last year, and the number of accounts rose 22 percent, according to a report by Devenir (PDF), an HSA investment advisor and consulting firm.

But as more employees work past traditional retirement age, some sticky issues arise for HSA account holders tied to enrollment in Medicare. The key issue: HSAs can only be used alongside qualified high-deductible health insurance plans. The minimum deductible allowed for HSA-qualified accounts this year is $1,300 for individual coverage ($2,600 for family coverage). Medicare is not considered a high-deductible plan, although the Part A deductible this year is $1,288 (for Part B, it is $166).

That means that if a worker – or a spouse covered on the employer’s plan – signs up for Medicare coverage, the worker must stop contributing to the HSA, although withdrawals can continue. Recognizing the problem, U.S. Senator Orrin Hatch and Representative Erik Paulsen proposed legislation last month that would allow HSA-eligible seniors enrolled in Medicare Part A (only) to continue to contribute to their HSAs.

The HSA complication is bound to arise more often as the huge baby boom generation retires, and as high-deductible insurance linked to HSA accounts continues to gain popularity among employers. High-deductible plans come with lower premiums – the average premium for individual coverage in a high-deductible health plan coupled with a savings option last year was $5,567 (the employee share was $868), KFF reports. By contrast, the comparable average premium for a preferred provider organization was $6,575 (with workers contributing $1,145).

Some experts also pitch HSAs as a tax-advantaged way to save to meet healthcare costs in retirement – although the HSA’s main purpose of the accounts is to help people meet current-year deductible costs, and employers often make an annual contribution for that purpose.

A questionable economic theory is another driver – namely, the idea that the growth of health care costs can be slowed by forcing workers to be more cost-conscious “shoppers” for health care services. But a remarkable study of thousands of workers released last October found that workers – healthy and sick – who were forced to pay more out of pocket didn’t shop for less expensive services. They simply used less health care – and that points strongly to the likelihood of higher health care expenses down the road, both for employer plan sponsors and for Medicare and Medicaid. (The economists who conducted the study had access to actual health records of workers at a large corporation that shifted its workforce to high-deductible plans in 2013.)

In my Reuters column this week, I explain why deciding to delay a Medicare enrollment depends on your individual circumstances. If you work for an employer with fewer than 20 workers, Medicare usually is the primary insurer at age 65, so failing to sign up would mean losing much of your coverage – hardly worth the tax advantage of continued HSA contributions. If you work for a larger employer, Medicare coverage is secondary, so a delayed Medicare filing is more feasible – so long as you or a spouse are not enrolled in Social Security.



  1. Cynthia Stone says:

    I believe you are incorrect. A worker can continue to have an HSA at 65 if she has a high deductible plan from work and doesn’t take social security or medicare of any sort. That’s what the IRS document says and every other article that I have read says. If the worker’s spouse has medicare or social security the spouse can’t contribute to an HSA, but the worker can continue to contribute to an HSA if the worker doesn’t have medicare or social security. Please comment, as I am about to make a decision regarding HSA/Medicare.

  2. Mark Miller says:

    Cynthia, as mentioned in the article, you can continue to hold the HSA and withdraw from it. The prohibition to continued contributions applies if you receive Medicare. It also applies to the worker if that person’s spouse receives Medicare AND is covered on the employer-based plan. See this page at the Medicare Rights Center for more details.

  3. Kerry Kleiber says:

    What page? Because I think you’re mistaken, too.

  4. Mark Miller says:

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