Medicare and HSAs in 2025: What You Need to Know About Contributions and Costs

Once you enroll in Medicare, you lose the ability to make pretax contributions to your Health Savings Account (HSA). However, you can still use the existing funds in your HSA to pay for qualified Medicare expenses without penalty. Understanding how HSAs and Medicare work together is crucial to managing your healthcare finances effectively.

An HSA allows you to save pretax dollars to cover medical costs, but eligibility requires enrollment in a high deductible health plan (HDHP) and no other health coverage. Since Medicare counts as other coverage, you cannot contribute to an HSA after enrolling in Medicare.

Although new contributions are prohibited post-enrollment, your HSA funds remain accessible for Medicare premiums, deductibles, copayments, and other qualified expenses.

How HSAs Function After Medicare Enrollment

To contribute to an HSA, you must maintain a high deductible health plan without additional coverage, including Medicare. Enrollment in Medicare disqualifies you from making further pretax contributions to your HSA.

If you delay Medicare enrollment—possible if you are 65 but still employed or not yet receiving Social Security benefits—you can continue contributing to your HSA. This deferral strategy helps maximize your HSA savings before Medicare coverage begins.

Understanding Penalties When Combining HSAs and Medicare

You won’t incur late enrollment penalties if you have employer-sponsored health insurance and enroll in Medicare upon retirement, thanks to a special enrollment period. This also applies if you are covered under a spouse’s employer plan.

When You Avoid Penalties

For example, a working spouse over 65 who remains on their employer’s HSA-qualified plan can continue contributing to their HSA. Medicare enrollment can be deferred until retirement, at which point a special enrollment period allows for Medicare sign-up without penalty.

In this case, HSA contributions cease after Medicare enrollment, but existing funds can still be used for medical expenses.

When Penalties Apply

If a retiree declines Medicare at 65 without other coverage and pays out-of-pocket, they face a late enrollment penalty upon eventual Medicare sign-up. Part B premiums increase by 10% for each 12-month period without coverage, potentially resulting in significant premium surcharges.

Additionally, late enrollees must wait for the annual open enrollment period, as they lose eligibility for special enrollment.

Using HSA Funds for Medicare Expenses

HSA funds can be applied to a broad range of Medicare-related costs, including:

• Medicare Part B premiums
• Medicare Part C (Medicare Advantage) premiums
• Medicare Part D (prescription drug) premiums
• Deductibles across all Medicare parts
• Copayments and coinsurance
• Dental and vision care
• Insulin and diabetes supplies
• Over-the-counter medications

Part B includes a monthly premium and annual deductible, plus 20% coinsurance on most services. Part A usually has no premium but includes deductibles and coinsurance for extended hospital stays. Medicare Advantage and Part D plans vary in costs, all payable via HSA funds.

Medigap Premiums and HSAs

Medigap plans help cover out-of-pocket Medicare costs but are not qualified medical expenses for HSA use. You can pay Medigap premiums with HSA funds, but these withdrawals are taxable.

Tax Penalties for HSA Contributions After Medicare Enrollment

Contributions to an HSA are tax-free only if made before Medicare enrollment. Any contributions made after enrolling in Medicare are subject to back taxes and a 6% excise tax on excess contributions.

If you enroll in Medicare during your HSA testing period—the year after opening the HSA or after making maximum contributions midyear—you may face an additional 10% tax penalty.

Scenario Examples

Example 1: Steve enrolls in Medicare in October 2024 but continues to contribute $500 monthly to his HSA through December. He owes back taxes on $1,500 of contributions made post-enrollment.

Example 2: Mary opens an HSA in July 2023 and contributes the full annual limit. She enrolls in Medicare in June 2024 but continues contributing $500 monthly afterward. She owes back taxes on $4,000 plus an additional $400 excise tax due to the testing period.

To avoid penalties, it’s advisable to stop HSA contributions at least six months before Medicare enrollment, as the IRS treats Medicare eligibility as starting six months prior to actual enrollment.

Medicare Savings Accounts (MSAs): An Alternative to HSAs

Medicare offers Medicare Savings Accounts (MSAs), which combine a high deductible Medicare Advantage plan with a savings account funded by the plan provider.

Key differences from HSAs include:

• MSA funds are deposited by the plan, not contributed by the individual.
• Monthly premiums are limited to the standard Part B premium.
• You cannot be charged beyond Medicare-approved amounts for services.

Unused MSA funds roll over annually, and only Medicare Part A and B services count toward the deductible.

Summary of Key Points

• You cannot make pretax HSA contributions after enrolling in Medicare.
• Existing HSA funds can be used tax-free for Medicare premiums, deductibles, and copayments.
• Contributing to an HSA after Medicare enrollment triggers tax penalties.
• Stop contributing to your HSA at least six months prior to Medicare enrollment to avoid penalties.
• Consider a Medicare Savings Account (MSA) as a Medicare-compatible alternative to an HSA.

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