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HSA and Medicare Enrollment - Understanding the Rules

There are specific rules that pertain to the interplay between a Health Savings Account (HSA) and enrollment in Medicare.  A good understanding of the rules can help a company work with its employees in determining what they can and cannot do at the time they become eligible for Medicare.

We are frequently asked…if an employee can still contribute to an HSA if they do not enroll in Medicare. The simple answer is yes.  But.  There is always a but.  If an employee enrolls in Social Security, he or she is automatically enrolled in Medicare Part A, which then disallows eligibility to contribute to the HSA.  Any individual who is enrolled in either Medicare Part A or Part B is not able to contribute to an HSA. 

The IRS defines an individual as eligible to contribute to an HSA as follows (this can be found in Internal Revenue Service Bulletin 2004-2, Q/A-2):

“With respect to any month, any individual who: (1) is covered under a high deductible health plan (HDHP) on the first day of such month; (2) is not also covered by any other health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage); (3) is not enrolled in Medicare (generally, has not yet reached age 65); and (4) may not be claimed as a dependent on another person's tax return."


Individuals become ineligible to contribute to an HSA on the first day of the month of his or her 65th birthday.  So, for example, if an employee turns 65 on July 22, that employee would no longer be eligible to contribute to the HSA as of July 1.  The maximum contribution is then prorated based on the number of months of eligibility.  Based on the above example, the individual would be eligible to contribute 6/12th of the federal limit for the year. 

 Another question that may come to mind is what the benefit would be for an individual to postpone Social Security enrollment and therefore enrollment in Medicare.  In the case of an individual working for an employer with less than 20 employees (referred to as a small employer), when that person becomes eligible typically he or she needs to take Medicare when first qualified.  Unfortunately, this means the employee will lose the tax advantages of the HSA. Health care coverage from small employers pays secondary to Medicare. This means that if he or she fails to enroll in Medicare when first eligible the result may be little or no health coverage.

Large employer plans (20 or more employees) pay primary before Medicare, so employees who continue to work and wish to stay on the employer plan may not need to have Medicare in order to pay health expenses. For those working for a large employer, declining Medicare Part B is an option and can be elected at the time the employee is no longer eligible for coverage through the employer.

Medicare Part A can only be declined if the employee does not accept Social Security benefits. At the point, if the employee decides to enroll in Social Security he or she should ensure that contributions to the HSA are stopped at least six months prior. Why six months prior? Because once the individual applies for Social Security benefits (and in the case where the person is at least six months beyond full retirement age for such benefits), Social Security will back pay six months of retirement benefits - meaning the individual could not make contributions to the HSA during the back pay period. This could create a tax liability for the HSA for those six months.

Those who have an HSA account and enroll in Social Security and Medicare can continue to take distributions from the HSA for qualified medical expenses for the HSA owner, spouse and dependents on a tax-free basis.

Source: HR Workplace Services Group (866-691-7757) or email