Can I Pay For Medicare Expenses With My HSA?

If you own a Health Savings Account and you’re approaching Medicare eligibility, you likely want to know what you can and can’t do with your unused funds.

The good news is you can keep your HSA once on Medicare. This is helpful for those who have accumulated significant assets in their accounts. Furthermore, there are several Medicare specific expenses you for pay for tax-free using your HSA balance.

Not everyone begins Medicare at age 65. If you have qualified group health insurance (over 20 members), you can defer Medicare enrollment. In this case, you can keep your HSA qualified health plan and contribute up to the allowable maximums each year.

But once you elect Medicare Part B and leave your group health plan, you can no longer contribute to your HSA. Those are the rules. You must have a HSA qualified, high deductible health insurance plan in order to make contributions each year. And if you leave your qualified group plan in the middle of the year? You will need to have already contributed the allowable amount before making Medicare your primary insurance.

Your HSA funds always belong to you – not the insurance company. You can move your account to any custodian that accepts HSA’s. Most owners use a savings account, but some with larger balances invest in mutual funds or other market sensitive instruments. It’s up to you where you’d like to keep your deposits once on Medicare.

HSA funds can only be put toward qualified medical expenses in order to be withdrawn income tax-free. As was before, you can continue to use your HSA to pay for expenses like dental work, eye exams, chiropractic and acupuncture visits, but Medicare eligibility opens up a few more doors.

The I.R.S. allows you to use your Health Savings Account to pay for:

1. Medicare Part B premiums to the government
2. Part D Drug premiums to an insurance company
3. Medicare Advantage plan premiums to an insurance company

If your income is above certain thresholds, you will be charged more for your Medicare Part B and Part D premiums. You can use your HSA balance to pay these increased premiums as well. This can help to alleviate some of this financial burden until your income potentially decrease in retirement.

You can also pay for Medicare related deductibles, copays and coinsurance with your HSA. Even with a comprehensive Medicare Supplement plan, you may still have out of pocket costs. HSA plans can cover those – like your Part B deductible for insurance. You can also cover the cost sharing expenses associated with Medicare Advantage plans like deductibles and copays.

If you wish, you can use your Health Savings Account to pay for the care of a family member. The I.R.S allows for tax-free distributions from HSAs to cover health expenses for a spouse or a dependent. This is true even if you’re on Medicare and they are not.

You cannot, however, pay for a Medicare supplement (Medigap) policy using your HSA funds. That is one rule we’d like to see changed. Most Medicare supplement insurance plans are usually over a $100 a month. Allowing consumers to cover those regular expenses with an HSA would be helpful. Maybe we should petition Congress for this change…

However, if your supplement has deductibles, coinsurance or copays, then you can cover those amounts income tax-free with your HSA dollars. Some of our clients choose Medigap plans with larger out-of-pocket costs so as to maximize their HSA spending. This can be even more beneficial as some of the lower tier plans offer great value. There are some very compelling arguments to purchase Plans G or N (over C or F) regardless of your HSA status.

It’s important to understand that if you withdraw HSA funds for anything other than a qualified medical expense, a taxable event will likely be created. And if you’re under age 65, the government can levy a 20% penalty on top of any income taxes you may owe.

Yes, assuming you are purchasing a tax-qualified long term care insurance plan. (The government deems which types of LTC plans are tax qualified and which are not.) The good news is almost all LTC plans sold today are tax-qualified. Plans that don’t meet this standard are easily identified. They usually involve increased income (from an annuity) or an accelerated death benefit (from life insurance). Ask your agent or the underwriting insurance company when in doubt.

Your age will determine how much you can withdraw from your HSA to pay from long term care insurance tax-free.  Those age 65 and above can spend approximately $4,000 each year while those above age 70 are allowed to spend closer to $5,000. Using HSA dollars is a great way to fund some or all of a long term care insurance policy costs.

Hyers and Associates is an independent agency. We specialize in Ohio Medicare supplement plans as well as Advantage, Part D, life and long term care. We work in several states across the country and can help you learn more about your best insurance options and strategies. Contact us today!