HSA and Medicare

[waid10]

We currently offer 2 health plans; one is a high deductible health plan and one is not. We offer an HSA and make an employer contribution to it for employees that is equal to half of the annual deductible. The monthly premiums for the health plans are $50 for the HDHP and $150 for the regular plan.

From what I understand, if an employee enrolls in Medicare, he is not eligible for the HSA. But this same employee could elect the HDHP. Is it okay that we are making the contribution to the HSA, but the Medicare person can't get that contribution (because the Medicare makes them ineligible for the HSA) even though they are in the HDHP? Our HSA administrator is recommending that we offer that same HSA contribution amount to employees that elect the HDHP but aren't eligible for the HSA.

[quinnfield]

Why would an actively employed person bother to enroll in Medicare? Isn't it more advantageous to enroll in the HDHP and enjoy the tax benefits of the HSA as well?

[MARYMM]

We currently offer 2 health plans; one is a high deductible health plan and one is not. We offer an HSA and make an employer contribution to it for employees that is equal to half of the annual deductible. The monthly premiums for the health plans are $50 for the HDHP and $150 for the regular plan.

From what I understand, if an employee enrolls in Medicare, he is not eligible for the HSA. But this same employee could elect the HDHP. Is it okay that we are making the contribution to the HSA, but the Medicare person can't get that contribution (because the Medicare makes them ineligible for the HSA) even though they are in the HDHP? Our HSA administrator is recommending that we offer that same HSA contribution amount to employees that elect the HDHP but aren't eligible for the HSA.

When we switched to only offering an HDHP, we implemented an HRA for the employees who were on Medicare and thus ineligible for the HSA. Under that plan, we reimburse their qualified medical expenses up to the amount we would have contributed to the HSA. We elected not to allow them to carryover from year to year, so it could cost us less than the HSA would have.

Since you offer them another health insurance choice, I don't think you need to do an HRA - but that is up to you. If it is cheaper to have them in the HDHP plus provide the HRA, you may come out better cost-wise.

[Guest Susan deL]

It is my understanding that when a person reaches the age of 65, they are automatically enrolled in Medicare and it is not necessary for them to physically enroll. If that is the case, turning 65 would automatically make them ineligible to participate in an FSA. Does anyone have any further information or documentation that disproves this?

[MARYMM]

It is my understanding that when a person reaches the age of 65, they are automatically enrolled in Medicare and it is not necessary for them to physically enroll. If that is the case, turning 65 would automatically make them ineligible to participate in an FSA. Does anyone have any further information or documentation that disproves this?

Hi Susan

Here's a good article on this subject. It also discusses options for employees over 65 who have covered spouses under 65.

http://www.benefitspro.com/2011/04/19/loom...as-and-medicare

[caryn22359]

I am reading about the HSA and in order to qualify for an HSA you cannot be enrolled in Medicare.

According to pub 969 from the IRS page 8 Distributions from an HSA.

You cannot treat insurance premiums as qualified medical expenses unless the premiums are uses for:

# 4 Medicare and other health care coverage if you were 65 or older( other than premiums for a medicare supplemental policy, such as Medigap)

I am confused why would they let you pay for medicare premiums if you cannot be enrolled in HSA ? Am I missing something. Thank-you

[GMK]

It is my understanding that when a person reaches the age of 65, they are automatically enrolled in Medicare and it is not necessary for them to physically enroll.

Unless something changed very recently, I believe that Medicare enrollment is not automatic. People still need to sign up for Medicare.

If you are still working at 65 and have coverage under your employer's plan, you sign up for Medicare A, just to be in the system. In this case, Part A doesn't cost you anything, and it doesn't pay for anything, but signing up gets you into the system in case you all of a sudden need Part B. It takes 3 months to process an enrollment, so signing up for Part A gets you past that initial paperwork delay. Or so I've read.

[masteff]

I am reading about the HSA and in order to qualify for an HSA you cannot be enrolled in Medicare.

According to pub 969 from the IRS page 8 Distributions from an HSA.

You cannot treat insurance premiums as qualified medical expenses unless the premiums are uses for:

# 4 Medicare and other health care coverage if you were 65 or older( other than premiums for a medicare supplemental policy, such as Medigap)

I am confused why would they let you pay for medicare premiums if you cannot be enrolled in HSA ? Am I missing something. Thank-you

Your confusion point is the words "enroll" versus "contribute". You cannot contribute to an HSA after you enter Medicare, but you can still own an HSA with an existing balance from which you can take withdrawals.

[quinnfield]

Once again, if you’re over age 65 and not eligible for Medicare or not enrolled in Medicare Part A or Part B, you’re still eligible to establish or contribute to an HSA.

If this statement is false, please point me to the section of the Code that governs this.

[MARYMM]

I am reading about the HSA and in order to qualify for an HSA you cannot be enrolled in Medicare.

According to pub 969 from the IRS page 8 Distributions from an HSA.

You cannot treat insurance premiums as qualified medical expenses unless the premiums are uses for:

# 4 Medicare and other health care coverage if you were 65 or older( other than premiums for a medicare supplemental policy, such as Medigap)

I am confused why would they let you pay for medicare premiums if you cannot be enrolled in HSA ? Am I missing something. Thank-you

Once you retire and are no longer on your employer's medical plan, you can use your HSA funds to pay Medicare Part B premiums.

[Gary Lesser]

Me three.

[Guest Little Archer]

It is my knowing that when a individual gets to the age of 65, they are instantly registered in Medical health insurance and it is not necessary for them to actually join. If that is the situation, switching 65 would instantly create them ineligible to sign up in an FSA.

[quinnfield]

May someone age 65 or older contribute to an HSA?

Friday, December 12th, 2008 by WPJ

In Administrative, Procedural, and Miscellaneous Notice 2004-50, the IRS addresses this question. See Questions 2 and 4, excerpted below:

Q-2. May an otherwise eligible individual who is eligible for Medicare, but not enrolled in Medicare Part A or Part B, contribute to an HSA?

A-2. Yes. Section 223(b)(7) states that an individual ceases to be an eligible individual starting with the month he or she is entitled to benefits under Medicare. Under this provision, mere eligibility for Medicare does not make an individual ineligible to contribute to an HSA. Rather, the term “entitled to benefits under” Medicare means both eligibility and enrollment in Medicare.

Thus, an otherwise eligible individual under section 223©(1) who is not actually enrolled in Medicare Part A or Part B may contribute to an HSA until the month that individual is enrolled in Medicare.

Example (1). Y, age 66, is covered under her employer’s HDHP. Although Y is eligible for Medicare, Y is not ctually entitled to Medicare because she did not apply for benefits under Medicare (i.e., enroll in Medicare Part A or Part B). If Y is otherwise an eligible individual under section 223©(1), she may contribute to an HSA.

Example (2). In August 2004, X attains age 65 and applies for and begins receiving Social Security benefits. X is automatically enrolled in Medicare. As of August 1, 2004, X is no longer an eligible individual and may not contribute to an HSA.