Understanding Health Savings Accounts and Medicare

Two Powerful Tools

By Erica Beaudry

 

Healthcare costs continue to rise, leaving many individuals worried about how to manage their medical expenses both now and in the future. Two powerful tools in this regard are health savings accounts (HSAs) and Medicare. Understanding how these tools interact can help you make informed decisions about your healthcare and financial well-being.

If you’re still working and have employer-sponsored health insurance after age 65, you can delay enrolling in Medicare without penalty. Your HSA contributions can continue, but once you do enroll in Medicare, coordination between your HSA and Medicare is important to avoid any issues.

 

What Are the Advantages?

HSAs are tax-advantaged savings accounts that can be used to cover qualified medical expenses. They offer a unique blend of benefits that make them an attractive option for individuals and families.

• Triple tax advantage. One of the standout features of HSAs is their triple tax advantage. Contributions are tax-deductible, meaning you can reduce your taxable income by the amount you contribute. Additionally, the money you contribute grows tax-free, and withdrawals for qualified medical expenses are also tax-free.

• Ownership and portability. Unlike flexible spending accounts, HSAs are not tied to an employer. This means you own the account and can take it with you even if you change jobs or retire.

• Long-term savings. HSAs can be used as a powerful tool for saving for medical expenses in retirement. If you don’t use all the funds in a given year, the money continues to grow and can be tapped into for future healthcare needs.

• Eligibility. To open and contribute to an HSA, you must be enrolled in a high deductible health plan, which generally offers lower premiums and higher deductibles compared to traditional health plans.

 

Making the Most of Both HSAs and Medicare

• Pre-Medicare HSA contributions. Consider maximizing your HSA contributions before you switch to Medicare. Once you’re on any part of Medicare, you can no longer contribute to your HSA, but you can still use the funds for qualified medical expenses.

• Medicare premiums and HSAs. You cannot use HSA funds to pay for Medicare Supplement (Medigap) premiums. However, you can use HSA funds to pay for Medicare Parts A, B, C, and D premiums.

• Social Security and Medicare. If you are receiving Social Security benefits, Medicare Part A enrollment is mandatory. When you elect to collect Social Security benefits after age 65, there is a six-month look-back on your contributions, so planning to stop contributions ahead of time can help avoid tax penalties.

In conclusion, HSAs and Medicare are valuable tools for managing healthcare costs and securing your financial future. Understanding how they work individually and together can help you make informed decisions tailored to your unique circumstances. It’s wise to consult with financial advisors and healthcare insurance experts to create a comprehensive plan that ensures you’re prepared for your healthcare needs during your working years and into retirement.

 

Erica Beaudry is owner of EA Financial Solutions and a local, licensed, independent insurance agent with a focus on Medicare.