Health savings accounts can be tricky, especially when you are on Medicare. Not only do you need to meet certain criteria to have one, but you need to meet the same requirements to keep contributing to it.

One requirement to have an HSA is a high deductible plan, and you cannot have another health care plan. Since Medicare is considered another health care plan, and one that does not have a high deductible, you are not able to contribute to your HSA once you enroll with Medicare.

However, that does not mean you are unable to use your HSA along with your Medicare plan. You have stockpiled that money to help cover medical costs, and you are still able to use the HSA funds to cover expenses Medicare might not. Or to even help with Medicare premiums, copays, or deductibles.

How does an HSA while enrolled in Medicare?

To maintain and contribute to an HSA you need to be on a health plan that is a high-deductible plan. And you cannot be on any other medical insurance plan. This even means Medicare. Once you are enrolled in Medicare, you are not qualified to use your pretax dollars to contribute to your HSA.

You may be able to keep contributing if you are not enrolled in Medicare at 65. This takes special circumstances, being you are not yet retired or receiving SS benefits.

Is there a penalty for having Medicare and an HSA?

Fortunately, you will not face a late penalty if you have health care from your employer. This means, you have delay Medicare enrollment until you do retire. Retirement qualifies you for the Special Enrollment Period. The same rules apply if you are on your spouse’s employer’s health care plan.

However, if you turn 65 and do not have other coverage, you will be charged a penalty. Once you do enroll in Medicare, your Part B premium will be increased by 10% monthly for each year you did not enroll. Since you are also enrolling late without any special circumstance, you will have to wait until the Open Enrollment Period to sign up.

How can I use my HSA to help with Medicare premiums?

Since an HSA is for medical and healthcare costs, you can use the funds for qualifying expenses such as:

  • Part B, C, or D premiums
  • Medicare deductibles
  • Copays or coinsurance
  • Dental or vision
  • Over-the-counter medicines
  • Out-of-pocket costs

Can I pay Medigap premiums with my HSA?

You can, but you will have to pay taxes on the money you withdraw to do so. A Medigap plan is not a qualified medical expense, which is why you will have to pay taxes on the money taken out of your HSA to pay for it.

Are there tax penalties when using an HSA with Medicare?

You will pay tax penalties if your HSA contributions and Medicare enrollment overlap. The penalty amount will vary depending on your situation, circumstances, and how long they overlapped.

  • You will be subject to back taxes on any contributions to your HSA made after your Medicare enrollment starts. Plus, your contributions will be added back to your annual taxable income.
  • You may be hit with an excess tax by the IRS if you have contributed after your Medicare enrollment date. Excess taxes will be an additional 6% (if not more) when you take it out of your health savings account.

The IRS strongly recommends those contributing to an HSA stop doing so six months before they enroll in Medicare. Once you are enrolled in Medicare, the IRS considers the 6 months before your enrollment as a period you had access to Medicare. Stopping before that 6-month period means you should avoid any penalties that could be assessed and saves money, too.