Can You Contribute to an HSA After 65?

[For a primer on HSAs, start here: Health Savings Accounts, 220,000 Reasons Why You Need One.]

If you are working past age 65 and covered by an employer-sponsored health plan that is HSA compatible (a high deductible health plan or HDHP), you could in theory continue to fund a Health Savings Account with employee or employer contributions. However, an HSA contribution is only allowable if you do not have any other type of insurance. So, if you sign up for Medicare Part A (or any other Part), you would be disallowed from continuing to make new HSA contributions. Many health plans require coordination with Medicare at age 65, so be sure to check with your insurer.

If you choose to not sign up for Medicare at age 65, it is very important to maintain records that you were covered by an employer sponsored health plan. Otherwise you will pay permanently higher premiums for Part B when you do eventually enroll.

Luckily, if you have an existing HSA, there are lots of uses for your account. Just like before you started Medicare, you can use funds in an HSA to pay your out-of-pocket expenses like your doctor or hospital co-pays and prescription drug costs. You can use your HSA to pay for dental, vision, or other medical expenses not covered by Medicare.

Additionally, Medicare participants can use an HSA to pay for their premiums for Part B, Part D, or for a private Medicare Advantage plan. If your Medicare premiums are deducted from your Social Security check, just reimburse yourself from your HSA and keep detailed records as proof. Retirees may also use their HSA to pay a portion of their premiums towards a Long-Term Care policy, if they have one.

You can use an HSA to reimburse yourself for medical bills for past years, again providing you can document and prove these were qualified expenses. When you pass away, if you have listed your spouse as beneficiary, your spouse can inherit your HSA, and treat it as their own. Then they can also access the money tax-free for qualified medical expenses. However, if your HSA beneficiary is not a spouse (or one is not named), then the account will be distributed and that distribution will be taxable.

For Medicare participants interested in an HSA-like option, there is the Medicare MSA. This is a Medicare Advantage Plan which provides a cash account for expenses, but not fewer tax benefits than an HSA. Details from Medicare here.

When a 2% COLA Equals $0

Social Security provides Cost of Living Adjustments (COLAs) annually to recipients, based on changes to the Consumer Price Index. According to an article in Reuters this week, the Social Security COLA for 2018 should be around 2%. Social Security participants may be feeling like breaking out the Champagne and party hats, following a 0.3% raise for 2017 and a 0% COLA for 2016.

Unfortunately, and I hate to rain on your parade, the average Social Security participant will not see any of the 2% COLA in 2018. Why not? Because of increases in premiums for Medicare Part B. Most Social Security recipients begin Part B at age 65, and those premiums are automatically withheld from your Social Security payments.

Social Security has a nice benefit, called the “Hold Harmless” rule, which says that your Social Security payment can not drop because of an increase in Medicare costs. In 2016 and 2017 when Medicare costs went up, but Social Security payments did not, recipients did not see a decrease in their benefit amounts. Now, that’s going to catch up with them in 2018.

In 2015, Medicare Part B was $105/month and today premiums are $134. For a typical Social Security benefit of $1,300 a month, a 2% COLA (an increase of $26 a month) will be less than the increase for Part B, so recipients at this level and below will likely see no increase their net payments in 2018. While many didn’t have to pay the increases in Part B over the past two years, their 2018 COLA will be applied first to the changes in Medicare premiums.

I should add that the “Hold Harmless” rule does not apply if you are subject to Medicare’s Income Related Monthly Adjustment Amount. If your income was above $85,000 single, or $170,000 married (two years ago), you would already pay higher premiums for Medicare and would be ineligible for the “Hold Harmless” provision. And if you had worked outside of Social Security, as a Teacher in Texas, for example, you were also ineligible for “Hold Harmless”.

The cost, length, and complexity of retirement has gone up considerably in the past generation. Not sure where to begin? Give me a call, we can help. Preparation begins with planning.