House bill

Current bill could affect HSAs and Medicare beneficiaries

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As health insurance costs continue to rise, many employers are offering their employees HSA plan options to reduce health care costs. HSA plans have grown in popularity with more than 32 million active HSA accounts in America.

Many Americans don’t know that if you decide to work after 65. once you start Medicare, you can no longer have contributions to your HSA. A bill in the House of Representatives could change that and allow for continued contributions to an HSA when enrolling in Medicare.

Description of an HSA

HSA stands for Health Savings Account. These accounts set aside money to cover eligible medical expenses. In addition to funds used for eligible medical expenses, they also receive significant tax benefits.

To qualify for an HSA account, you must enroll in an eligible high-deductible health insurance plan. A qualifying high-deductible plan must meet the following criteria:

  • Deductible $1,400 individual $2,800 family
  • Maximum disbursements $7,050 individual $14,100 family.

Medicare does not meet the criteria for a high deductible account. Because it is not considered a high-deductible plan, it is not eligible for use with a contributory HSA account.

Current Medicare and HSA Rules

If you contribute to an HSA account and are enrolled in Medicare, you will have access to a 6% excise tax penalty. You can use your HSA funds to cover eligible medical expenses. Your HSA funds are also available to pay your Medicare Parts A, B, C, and D premiums.

Most Medicare beneficiaries are 65 years or more. Once you are 65, you can withdraw money from your HSA for non-medical uses without penalty. Medicare supplement premiums cannot be paid using an HSA account.

Proposed Changes to Medicare and HSA Rules

If the new changes are passed, eligible beneficiaries could enroll in Medicare and continue to pay HSA premiums. For some, this is great news. Unfortunately, beneficiaries who rely on their HSA funds to pay their Medicare premiums would lose the ability to do so.

Seniors could no longer access their HSA funds for non-medical uses without being assessed a penalty. This change will have a significant impact on seniors who use this benefit.

FAQs

How much can I contribute annually to my HSA?

For 2022, HSA contributions are limited to $3,650 for individuals and $7,300 for family coverage. You are allowed to contribute an additional $1,000 if you are 55 or older.

Any excess contribution would not be tax deductible and is considered taxable income.

What happens to my HSA at age 65?

Under current law, if you turn 65 and delay all parts of Medicare, there will be no change in how your HSA dues work. If you choose to start Medicare, you will no longer be able to make contributions to your HSA without a 6% excise tax penalty.

With the new legislation, this would change. You will be allowed to contribute even if you are enrolled in Medicare. The penalty would be removed.

Is it wise to maximize my HSA contributions?

If you can afford to contribute the maximum, there’s no reason not to. You may want to consider whether it makes more sense to invest the extra amount in your 401K.

It would make sense to consider the amount your employer contributes. This would ensure you make the best decision for yourself.

Summary

The new legislation would allow people with Medicare to continue contributing to their HSA accounts. This change would also eliminate the ability to pay Medicare premiums with the funds or use the money tax-free for non-medical expenses.

We can expect the contribution limits to increase significantly in 2023 with the increase in the cost of living.

Lindsay Malzone is the Medicare expert for Medigap.com. She has contributed to many well-known publications as an industry expert since 2017. Her passion is educating Medicare beneficiaries on all of their Medicare supplemental options so they can make an informed decision about their coverage. health care.