Social Security Matters

Ask Rusty – Using Health Savings Account (HSA) Funds while on Medicare

Dear Rusty:   My understanding is that once I’m on Medicare the HSAcannot be used. I have prescriptions that cost more with the Medicare Insurance than paying cash, so why can’t I use the HSA to pay for these types of prescriptions and for DME with prescriptions?  Signed:  Wanting to Know

Dear Wanting:  The “HSA” (Health Savings Account) is an excellent vehicle to save money tax-free to use for paying medical expenses not covered by other types of healthcare insurance, but the rules surrounding HSAs are often confusing. To be eligible for an HSA, your main healthcare coverage must be (or have been) a high-deductible plan which exposes you to significant healthcare expenses you must pay “out of pocket.” While you are working the HSA provides a savings account that you (and your employer) can contribute pre-tax dollars to, up to certain annual limits ($3,500 if you’re single and $7,000 for a family in 2019). The money contributed reduces your taxable income and thus your tax burden, and money withdrawn from your HSA account to pay medical expenses is not considered taxable income. Certainly, a win-win situation, but there are some restrictions that you need to be aware of: First, you and your employer must stop making HSA contributions 6 months prior to your date of application for Medicare Part A (hospitalization coverage). Enrollment in Part A is automatic if you are 65 when you apply for Social Security, because you cannot receive Social Security benefits without taking Part A if you are 65.  Any HSA contributions made after the cut-off may be subject to tax penalties and they will not be considered pre-tax contributions (this applies to contributions from both you and your employer). But although you can no longer contribute to your HSA 6 months before applying for Part A, you can still use the money which has accumulated in your HSA to pay medical expenses for you and your spouse after you have enrolled in Medicare. A medicine or drug is a qualified medical expense for HSA purposes only if the medicine or drug requires a prescription or is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it or is insulin.



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