Although health savings accounts (HSA) aren’t the most popular health insurance option out there, they are still a useful tool used by many. HSA’s can be confusing to understand, and their interactions with Medicare even more so. We’ll run through everything you need to know about your HSA plan, how it interacts with Medicare, and what your options are if you’re turning 65 soon.

What Is an HSA?

HSA stands for health savings account. A health savings account is a type of savings account that you are allowed to open if you have a high deductible health plan (HDHP). The idea behind HSA’s is that you are able to save money to use towards your healthcare costs in an easier way that also provides you with a tax benefit.

When you have a high deductible plan, you may need to pay for a large amount of your healthcare out of pocket. Because HSA’s allow you to save money tax-free, you are able to have a more secure cushion of funds set aside to pay for your qualified medical expenses before your deductible is paid. After you pay your deductible using HSA funds (or a combination of HSA and non-HSA funds), your insurance coverage will begin.

HSA’s are available from many banks. Although they will each function in unique ways, the basic idea will be the same. Your HSA contribution will be deducted from your paycheck, pre-tax, and will be deposited in your HSA. There will be a set contribution limit, which changes from year to year and is set by the Treasury Department.

You can use your HSA funds when you pay your healthcare provider, often by using a special, HSA-specific debit card provided by your bank.

Your HSA funds will usually roll-over from one year to the next. In the event that someone with an HSA passes away, the money in the HSA will count as part of their estate and will be turned over to their relevant next-of-kin or spouse.

Restrictions on HSA Eligibility

Not everyone can open an HSA. You have to meet the following restrictions to open a health savings account:

• You must have a High Deductible Health Plan (HDHP)
• You must have no other plan in addition to this HDHP
• You cannot have a Flexible Savings Account (FSA) or a Health Reimbursement Account (HRA)
• You must not receive TRICARE benefits
• You must not have received VA benefits in the past 3 months, with some exceptions
• You must not be listed as a dependent on someone else’s tax return
• You must not be enrolled in Medicare (more on this later)

If you meet all of these requirements, then you will be able to open an HSA. If any of these conditions are no longer met, you will no longer be able to contribute to your HSA. However, the money in the HSA will still be available to you.

HSA and Medicare: Can You Have Both?

No, you cannot have an HSA and be enrolled in Medicare at the same time. This includes Original Medicare and Medicare Advantage. Enrolling in Medicare precludes HSA options in almost all cases anyways, because Medicare plans are not High Deductible Health Plans. Although there are some Medicare Advantage plans that do have a high deductible option, these still preclude you from opening an HSA.

If you are becoming eligible for Medicare, and have an existing HSA, you will have to choose if you want to keep your HSA or transition to Medicare.

What Should I Do When I Become Eligible?

For most people, Medicare enrollment begins when they turn 65. A few months before your birthday, you will receive some material in the mail about your enrollment. If you are already receiving Social Security benefits or Railroad Retirement Board benefits at this time, then your Medicare coverage will automatically begin on the first day of the month that you turn 65.

If you have an HSA prior to this time, you will not be able to make any more contributions. If you want to keep making contributions to your HSA and keep your private high deductible plan, then you will need to contact Medicare in order to delay your coverage.

Delaying coverage can be a good option for some, especially if you still receive coverage from your employer, but make sure that you are careful. If you don’t enroll in Medicare at the proper time, you can face a hefty late enrollment penalty.

If you do enroll in Medicare, your HSA funds will still be available to you.

Medicare MSA's: Another Option

If you really like the format of a health savings plan, then Medicare does have an option that you can look at. This is known as a Medical Savings Account, or MSA. Medicare Savings Plans function in a similar way to HSA accounts, but are only available to Medicare beneficiaries, and have a few distinctions.

Medicare Savings Plans are a type of Medicare Advantage plan. These plans, also known as Part C plans, essentially provide you with a way of getting your health benefits through a private insurance company, while still using your Medicare coverage. You can think of an MSA as a subset of Medicare Advantage.

Every Medicare Savings Plan must offer the same coverage that Original Medicare does. This means that if something is covered under Medicare Part A or Part B, it will be covered by your MSA. However, MSA’s will have a high deductible, and their coinsurance and copays can also vary from what you would pay under Original Medicare. Your premium will typically be cheaper than the Medicare premium.

While Medicare Savings Plans aren’t exactly the same as HSA’s, they offer many of the same benefits. This includes flexible spending and high deductible plans, which can be a financial benefit for many who don’t use their benefits as often. Medicare Savings Plans aren’t quite as popular as other Medicare Advantage plans, so it may not be quite as easy to find a good plan in your area.

You can read more about Medicare Savings Plans at medicare.gov here.

Summary of HSA Information

If you have an HSA, you cannot have Medicare at the same time. Making sure that you defer enrollment is therefore essential when you become eligible for Medicare. If you do want to enroll in Medicare but are drawn to the benefits that an HSA offers, then a Medicare Savings Plan is likely your best bet. Finding one of these plans can require a thorough search, but finding a plan that works for you will provide you with the best of both worlds.