Dan Dalton | Getty Images
Under a bill pending in Congress, Medicare beneficiaries would be allowed to set aside money in health savings accounts — something they currently can’t do.
However, it also would change a couple of the benefits that come with HSAs for anyone who’s 65 or older.
Called the Health Savings for Seniors Act and recently introduced in the House, the bipartisan bill (H.R. 7435) revives past legislative efforts to let individuals on Medicare contribute to HSAs. With many workers using these accounts in conjunction with their employer health plan, more people are likely to reach age 65 — the point at which you become eligible for Medicare — with an HSA in tow.
More from Personal Finance:
How to sidestep a tax bomb when selling your home
‘Unretiring’? How to handle your Medicare coverage
How to calculate your own personal inflation rate
“Many clients who have established HSA accounts think that they can continue funding the HSA past enrollment in Medicare,” said Elizabeth Gavino, founder of Lewin & Gavino and an independent broker and general agent for Medicare plans. “They’re usually surprised to find out they can’t.”
The bill’s tradeoffs? It would remove the ability to use HSA withdrawals to pay for Medicare premiums — something that’s currently allowed. It also would eliminate penalty-free withdrawals for nonmedical expenses in the 65-and-older crowd as now permitted.
At the end of 2021, there were 32 million of these accounts — up 8% from 2020 — holding an aggregate $98 billion, according to a report from investment consultant Devenir. The firm expects that to grow to 38 million accounts with $150 billion in assets by the end of 2024.
Annual contributions to HSAs (for 2022) are limited to $3,650 for individual coverage and $7,300 for family coverage. (The limits next year will be higher). People age 55 or older can put an extra $1,000 in per year.
HSAs come with a triple tax benefit: Contributions are tax-deductible, earnings are tax-free and withdrawals also are untaxed as long as they are used to cover qualified medical expenses. Roughly 28% of workers are enrolled in such a plan, up from 17% in 2011, according to 2021 research from the Kaiser Family Foundation.
However, you can only contribute to an HSA if you have a so-called high-deductible health care plan — and Medicare falls outside that category. Beneficiaries can use their HSA funds to pay for medical expenses, but cannot set up a new HSA or contribute to one.
A lot more companies are going to high-deductible plans, and a lot more people are working longer.
Associate director for the Center for Medicare Advocacy
While people who are still working can sign …….