What is a Health Savings Account? Will Medicare affect mine?

A health savings account can help you save money on medical bills, depending on the type of insurance. If you’re eligible, you can use your Health Savings Account (HSA) to cover certain medical expenses, according to HealthCare.gov.

How does an HSA work?

If you have a high-deductible health plan, you can contribute to an HSA and use the untaxed money to cover medical bills, reducing your total medical bills.

High-deductible health plans typically have lower monthly premiums than other insurance plans. However, people may pay more for medical services before coverage begins, according to HealthCare.gov.

What Do Health Savings Accounts Cover?

You can use an HSA to pay for deductibles, copayments and coinsurance.

Examples of typical expenses for which a health savings account can be used include:

  • Acupuncture
  • Ambulance costs
  • Medical visits
  • Hearing aids
  • Medicines
  • Psychiatric assistance and psychological therapy
  • Some long-term care services

However, you typically can’t use money from an HSA for monthly insurance premiums unless you receive Medicare, Continuing Health Care coverage, or unemployment benefits.

For long-term care insurance, you may be able to pay premiums through a health savings account.

The benefits of health savings accounts

The advantage of using a health savings account is that the funds are not subject to federal taxes when you contribute or withdraw money to pay for qualifying medical expenses. You can also earn tax-free interest.

If you have any money left in your account at the end of the year, it rolls over. Funds remain active, staying in your account until you need them. Even if you change jobs or retire, you can keep your HSA.

In some cases, you can use your health savings account to cover medical expenses for your spouse and dependents, even if they’re not in your plan.

Regulation of the Health Savings Account

Contribution amounts for 2023

The Internal Revenue Service sets contribution limits for HSAs.

  • For 2023, individuals can contribute up to $3,850 and families can put up to $7,300 into a health savings account, Investopedia reports.
  • Individuals age 55 and older by the end of the tax year are eligible to make an additional $1,000 recovery fee.

Other types of insurance

Other insurance plans may disqualify you from contributing funds to an HSA.

  • Individuals with dollar insurance plans – where the insurer takes care of its share of an included service before the insured individual pays deductibles or co-payments – cannot put funds into a health savings account for their expenses healthcare pending.
  • Those on Medicare can’t add money to health savings accounts, although they can draw capital from their accounts to pay for medical bills that Medicare doesn’t cover. While people using health savings accounts typically can’t use the funds to cover monthly premiums, there is an exception for Medicare beneficiaries.


While health savings accounts have several benefits, they also impose restrictions on how you use your money.

Taking money out of your account for non-medical or non-qualified expenses before you reach 65 results in a 20% tax penalty. The 20% tax penalty for ineligible withdrawals does not apply if you are 65 years of age and older. However, you have to pay income tax.

Opening a health savings account

There are several ways to open an HSA.

  • Employers can offer these, with the employer and employee jointly funding the account.
  • Some health insurance companies provide health savings accounts with high-deductible health plans.
  • Banks and financial institutions offer accounts for individuals.

How does Medicare affect your health savings account?

When you enroll in Medicare, you can no longer contribute pre-tax dollars to your health savings account. To put untaxed money into an HSA, you must have high-deductible health insurance without additional disqualifying coverage, such as Medicare. Once you have Medicare, you can no longer add tax-free funds to your account.

After you enroll in Medicare, however, you can still access your health savings account. One of the benefits of health savings accounts is that they are acquired. As a Medicare beneficiary, you can continue to use untaxed funds to cover medical expenses not covered by your insurance, such as deductibles, coinsurance, and copayments. However, you can’t use tax-free money to pay for Medicare supplemental insurance.

While the Internal Revenue Service (IRS) prohibits people from using untaxed capital for deductible health insurance plan premiums, the rule is different for Medicare. When you enroll, you can use your HSA to pay your Medicare premiums tax-free.

Withdrawing money from your HSA

People over the age of 65 can withdraw funds from their health savings accounts for non-medical expenses. While these withdrawals are no longer tax-free, older adults do not incur the 20% tax penalty that the IRS imposes on young people who take funds from the HSA for ineligible expenses.

Because medical expenses tend to rise with age, many prefer to keep their money in health savings accounts to cover eligible tax-free medical expenses.

Delay enrollment in Medicare

Some people with health savings accounts enroll in Medicare when they initially become eligible, losing the ability to make HSA deposits for Medicare coverage. Others delay enrollment to continue making contributions to the health savings account.

  • According to Journal of Accountingonly people with employer-sponsored high-deductible health insurance as primary coverage can continue to grow their health savings accounts beyond retirement age by delaying enrollment in Medicare.

    Individuals with private insurance, Continuing Health Coverage (COBRA), or health care exchange cannot fund their HSAs after they reach retirement age.

  • People who continue to work in small businesses after becoming Medicare-eligible must enroll in the program immediately to get health insurance coverage.

    According to MedicareInteractive.org, Medicare should be the primary insurance for those working in companies with fewer than 20 employees. Because the small employer’s health plan doesn’t have to pay until Medicare contributes, these people risk losing health coverage if they delay enrolling in Medicare. The postponement also results in a late penalty.

  • Those who have health insurance from companies with 20 or more employees can defer enrolling in Medicare and continue to deposit funds into their health savings accounts. Because company insurance would remain the primary insurer when they join Medicare, they can continue to get health insurance coverage without Medicare.

People who want to delay enrolling in Medicare do not have to accept Social Security payments. That’s because Social Security automatically registers beneficiaries for Medicare Part A, making them unable to make HSA deposits.

Medicare and the IRS recommend that people who have delayed enrollment after becoming eligible stop contributions to their Health Savings Account six months before joining Medicare to avoid a tax penalty. A six-month grace period applies, as Medicare coverage is retroactive.

If you have an HSA, whether or not you should delay enrolling in Medicare depends on your situation. The decision could have a significant impact on your finances. Talk to a senior attorney near you to learn more about your options for your health savings account as you approach retirement age.

Last modified: 19/01/2023


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