HSA, COBRA and Medicare for a 66+ yr old

I think I know the answer but I’m not 100% sure.

I recently had my job moved to Mexico. My severance date is in August when I’ll be 66, 8 months old. (Born in 12/1958).  My wife is 72 and collecting Medicare. She is not on my HDHP nor the HSA. My name only as an individual. I am fully planning to continue working till I’m 70. I am probably not going to file for SS so we can maximize our payments. 

I have an HSA I’ve been contributing the max to for a number of years.  My HDHP is via my employer. So I was planning to contribute the max to my HSA until Dec, 2028.  We planned to use it for long term healthcare if we ever needed it. So we really wanted to max it out and we never draw down from it.

But I know I can’t contribute now once my employment is over.  BUT….. as part of my package, the company pays 6 months of COBRA of my HDHP.  And then I can choose to pay COBRA for another 12 months if I want.  I will be working as an independent consultant, most likely as a 1099.

Would I still be considered qualified to contribute to my HSA during the company paid COBRA period? Even though I could sign up for Medicare?

What about when I take over the COBRA payments?  Can I still not sign up for Medicare and contribute to the HSA?

if I wasn’t eligible for Medicare, I’m pretty sure I can contribute to the HSA while on COBRA.  I’ve found some articles on that.
But would the IRS consider me covered by an employer’s HDHP or disallow it since I could apply for Medicare?

I know I’d pay a lot for the COBRA but adding another 10+K to my HSA that can grow tax free a few more decades may be worth it.

Both my wife and I are healthy, we have no medical problems, are active, and have longevity with both our parents having lived well into their 90’s and one to 103.

Thanks in advance for any insights.

Craig

I'm not sure I fully understand your situation but if you are not going to covered by a group health plan through current employment (i.e., COBRA doesn't count) for longer than eight months, you're probably looking at paying higher premiums for Medicare Part B and D when you ultimately enroll in Medicare.

2 hours ago, Chaz said:

I'm not sure I fully understand your situation but if you are not going to covered by a group health plan through current employment (i.e., COBRA doesn't count) for longer than eight months, you're probably looking at paying higher premiums for Medicare Part B and D when you ultimately enroll in Medicare.

Thank you for your reply.

My termination package specifically specifies a 6 months + 12 months for a total of 18 months. I have found that if I’m on COBRA payments I’m still considered to be on a HDHP and can still contribute to the HSA.  I cannot find any info if that changes if I’m Medicare eligible but don’t sign up.

I haven’t found if Medicare penalizes me for remaining on an existing employer HDHP via COBRA and not signing up for Medicare upon termination.  The IRS doesn’t have a problem with it it appears for purposes of the HSA contributions.

Yes,.. the COBRA payments for the extra 12 months maybe more $$$. (First six months paid by company).  But if the additional contribution amounts remain in the tax free HSA for 10-20 yrs it maybe worth it.

5 hours ago, Craig said:

I haven’t found if Medicare penalizes me for remaining on an existing employer HDHP via COBRA and not signing up for Medicare upon termination.  

My comments do not relate to the HSA/HDHP part of it. 

Here is a good resource on enrolling in Medicare and the potential penalties that you will incur if you enroll late:

https://www.medicare.gov/publications/10050-medicare-and-you0.pdf

See pages 17-18 (and elsewhere in the document) for a discussion of the timing of enrollment.

The HSA eligibility rules are the same whether the HDHP enrollment is active coverage or COBRA coverage.  As long as you don't enroll in Medicare, you can still be HSA-eligible.  Just keep in mind that starting Social Security benefits will automatically enroll you in Part A (and therefore block HSA eligibility).

Also keep in mind that you generally would not want to enroll only in COBRA at age 65+ because the plan can treat such coverage as secondary to Medicare even if not enrolled in Medicare, and (as noted above) you do not get an extension on the Medicare 8-month special enrollment period or late enrollment penalty from COBRA coverage.

More details:

https://www.newfront.com/blog/the-hsa-eligibility-requirements-part-2

The HSA Eligibility Requirements

Individuals must satisfy the following four requirements to be HSA-eligible (bolded items covered in this post):

1. Be covered by a qualified high deductible health plan (HDHP);
2. Have no other disqualifying health coverage;
3. Not be enrolled in any part of Medicare; and
4. Not be able to be claimed as a dependent on someone else’s current-year tax return.

HSA Eligibility Requirement #3: No Medicare Enrollment

Enrollment in any part of Medicare is disqualifying coverage that causes an individual to lose HSA eligibility. This means that an individual who is enrolled in Medicare Part A, Part B, Part C, Part D, or any combination thereof is not eligible to make or receive HSA contributions. Even enrollment in only the (generally premium-free) Medicare Part A hospital coverage blocks HSA eligibility.

For more details:

• Newfront Medicare for Employers Guide
• How Medicare Affects HSA Eligibility

Individuals Who Are Age 65+ May Still Be HSA Eligible
Medicare enrollment causes an individual to lose HSA eligibility. However, many employees age 65 and older delay enrollment in Medicare, and therefore may continue to be HSA-eligible. In other words, mere eligibility to enroll in Medicare has no effect on the individual’s HSA eligibility if the individual chooses not to enroll in any part of Medicare.

The Medicare Part A Automatic Enrollment Trap: Individuals Receiving Social Security Retirement Benefits
Individuals who are receiving Social Security retirement benefits are automatically enrolled in (premium-free) Medicare Part A hospital coverage with no opt-out permitted. Accordingly, any individual receiving Social Security retirement benefits is not HSA eligible by virtue of the automatic Medicare Part A enrollment.

The Medicare Part A Retroactive Enrollment Trap: Six Months of Retroactive Coverage
For individuals who delay enrolling in Medicare until after age 65, the Medicare Part A enrollment will be effective retroactively up to six months. This six-month retroactive enrollment in Medicare Part A will also block HSA eligibility retroactively for six months.

Individuals have two options to address the retroactive Medicare Part A enrollment causing the retroactive loss of HSA eligibility:

• Plan Ahead: Stop making HSA contributions at least six months before applying for Medicare, and limit HSA contributions during that period to the prorated amount; or
• Correct Mistake: Work with the HSA custodian to take a corrective distribution of the excess contributions by the due date (including extensions) for filing the individual tax return (generally April 15, without extension).

Example 1:

• Jacob reaches age 65 in August 2024 but does not enroll in Medicare.
• Jacob signs up for Social Security benefits on October 1, 2025, which automatically enrolls him in Medicare Part A retroactive to April 1, 2025.

Result 1:

• Jacob retroactively loses HSA eligibility as of April 2025—and therefore he can contribute only 3/12 of the HSA statutory limit for 2025 (plus 3/12 of the catch-up contribution).
• If he already contributed in excess of that limit, Jacob will need to make a corrective distribution of the excess contributions by April 15, 2026 (assuming no extensions) to avoid a 6% excise tax.

Slide summary:

2025 Newfront Medicare for Employers Guide

Brian.. so if I read that right.

- I can stay on the COBRA for no more than 8 months.  Because I HAVE to enroll in Medicare by May, 2026 to avoid penalty from late sign up. (Termination date is August 4, 2025). 

- i would be HSA compliant as long as I didn’t register for any Medicare.

- I need to check the HDHP plan and see if it will pay as primary if I’m not enrolled in Medicare or if it automatically considers the HDHP as secondary payer since I’m 65+ and Medicare eligible.

You would think Medicare would be happy to have me not enroll as long as possible as it would save them money potentially!! Go figure.

i really hate to lose the HSA contributions! Its been really good for us.