Medicare enrollees might put cash in HSA plans beneath Home invoice

There is a renewed push in Congress to let Medicare beneficiaries put aside pre-tax cash for medical bills.

Known as the Well being Financial savings for Seniors Act and launched this month within the Home, the bipartisan invoice revives previous legislative efforts to let people on Medicare contribute to well being financial savings accounts, or HSAs, which they at present can’t do. But with a rising variety of staff utilizing these accounts, extra persons are more likely to attain age 65 — the purpose at which you grow to be eligible for Medicare — with an HSA in tow.

“Many purchasers who’ve established HSA accounts suppose that they will proceed funding the HSA previous enrollment in Medicare,” mentioned Elizabeth Gavino, founding father of Lewin & Gavino and an impartial dealer and basic agent for Medicare plans. “They’re normally stunned to search out out they cannot.”

The invoice does include a tradeoff: It could take away the flexibility to make use of HSA withdrawals to pay for Medicare premiums — one thing that is at present allowed. It additionally would get rid of penalty-free withdrawals for non-medical bills within the 65-and-older crowd as now permitted.

On the finish of 2021, there were 32 million of these accounts — up 8% from 2020 — holding an combination $98 billion, based on a latest report from funding guide Devenir.  Annual contributions to HSAs for 2022 are restricted to $3,650 for somebody with particular person protection and $7,300 for household protection. Folks age 55 or older can put an additional $1,000 in per 12 months.

HSAs include a triple tax profit: Contributions are tax-deductible, earnings are tax-free and withdrawals are also untaxed so long as they’re used to cowl certified medical bills. Roughly 28% of staff are enrolled in such a plan, up from 17% in 2011, based on 2021 analysis from the Kaiser Household Basis. 

Nevertheless, you’ll be able to solely contribute to an HSA when you have a so-called high-deductible well being care plan — and Medicare protection doesn’t fall in that class. Beneficiaries are permitted to make use of their HSA funds to pay for medical bills, but can’t arrange a brand new HSA or contribute to at least one.

Whereas people who find themselves nonetheless working can join Medicare at age 65, many select to continue using their employer’s health plan alongside Medicare Half A (hospital protection) and, maybe, Half B (outpatient care). If it is a high-deductible plan paired with an HSA, they will solely proceed making these pre-tax contributions to the account in the event that they delay signing up for Medicare altogether.

“Much more corporations are going to high-deductible plans and much more persons are working longer,” mentioned Kathleen Holt, affiliate director for the Heart for Medicare Advocacy. “They usually’re stumbling into these guidelines round HSAs.”

For 2022, a high-deductible well being plan is one with a deductible of no less than $1,400 for a person or $2,800 for household protection, with most annual out-of-pocket prices (not counting premiums) of not more than $7,050 (for a person) and $14,100 (household plan). That excludes out-of-network prices.

The Medicare program does have one thing much like HSAs, known as medical financial savings accounts, though they aren’t broadly used — roughly 5,600 beneficiaries have been in well being plans that used them in 2019, based on the Kaiser Household Basis.

These so-called MSAs are paired with a high-deductible Medicare Benefit Plan (which some beneficiaries select) however people can’t contribute to the account. The insurer that provides the plan makes the contributions — an quantity that would fluctuate from 12 months to 12 months — and you may make tax-free withdrawals to cowl medical bills.

Additionally, MSA plans don’t embrace Half D prescription drug protection, based on the Facilities for Medicare and Medicaid Providers.

It is unsure whether or not the Home invoice will achieve any momentum. Whereas the 2019 model of the measure collected cosponsors, it by no means made it out of committee.