You possibly can’t save in HSA on Medicare. A invoice to vary that has tradeoffs

Beneath a invoice pending in Congress, Medicare beneficiaries could be allowed to put aside cash in well being financial savings accounts — one thing they presently cannot do.

Nevertheless, it additionally would change a few the advantages that include HSAs for anybody who’s 65 or older.

Referred to as the Well being Financial savings for Seniors Act and just lately launched within the Home, the bipartisan invoice (H.R. 7435) revives previous legislative efforts to let people on Medicare contribute to HSAs. With many employees utilizing these accounts along side their employer well being plan, extra individuals are more likely to attain age 65 — the purpose at which you turn out to be eligible for Medicare — with an HSA in tow.

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“Many purchasers who’ve established HSA accounts suppose that they’ll proceed funding the HSA previous enrollment in Medicare,” stated Elizabeth Gavino, founding father of Lewin & Gavino and an impartial dealer and normal agent for Medicare plans. “They’re normally shocked to search out out they can not.”

The invoice’s tradeoffs? It could take away the flexibility to make use of HSA withdrawals to pay for Medicare premiums — one thing that is presently allowed. It additionally would remove penalty-free withdrawals for nonmedical 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 mixture $98 billion, in line with a report from funding marketing consultant Devenir. The agency expects that to develop to 38 million accounts with $150 billion in property by the top of 2024. 

Annual contributions to HSAs (for 2022) are restricted to $3,650 for particular person protection and $7,300 for household protection. (The limits next year will be higher). Individuals 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 employees are enrolled in such a plan, up from 17% in 2011, in line with 2021 analysis from the Kaiser Household Basis.

Nevertheless, you possibly can solely contribute to an HSA when you’ve got a so-called high-deductible well being care plan — and Medicare falls exterior that class. Beneficiaries can use their HSA funds to pay for medical bills, however can not arrange a brand new HSA or contribute to 1.

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 the employer plan is a high-deductible one paired with an HSA, they’ll proceed making these pretax contributions to the account provided that they delay signing up for Medicare altogether.

“Much more firms are going to high-deductible plans, and much more individuals are working longer,” stated Kathleen Holt, affiliate director for the Heart for Medicare Advocacy. “And so they’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 just like HSAs referred to as medical financial savings accounts, though they don’t seem to be broadly used — roughly 5,600 beneficiaries have been in well being plans that used them in 2019, in line with the Kaiser Household Basis.

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

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

It is unsure whether or not the Home invoice will acquire any momentum. Whereas the 2019 model of the measure accrued co-sponsors, it by no means made it out of committee.