Q. I have health insurance from my employer in the form of a Health Savings Account. But I’m told I can’t use it if I’m eligible for Medicare. Is this correct? If so, what can I do to keep this insurance if I continue working after age 65?
A. A Health Savings Account (HSA) is a type of health insurance offered by an increasing number of employers. It combines a high-deductible health plan with a tax-free health savings account to which the employee and the employer can contribute. (It is not the same as a Medicare Medical Savings Account, a health plan available only to Medicare beneficiaries, which is not discussed in this article.)
IRS rules say that you can’t continue to contribute to an HSA if you’re entitled to Medicare. You can draw on funds already in the account but you can't add to them. But it’s important to know the difference in meaning between “eligible” and “entitled” as defined by government officials:
Eligible for Medicare means that you’ve met the requirements to qualify for Medicare Part A hospital insurance—in other words, you or your spouse has enough Social Security work credits—but you haven’t yet applied for it.
Entitled to Medicare means that you’re eligible, you’ve filed an application to receive Medicare Part A or have been approved automatically, and your name is already in the system—or that the application has been processed and you’ve been sent a Medicare card showing the date your coverage starts.
(Enrolled in Medicare means that you’ve chosen to sign up for Part B—coverage of doctors’ and outpatient services—or that you’re one of the relatively few people who pay premiums to purchase Part A. Most people don’t need to actively enroll in Part A because if they have sufficient work credits, they’re automatically eligible and pay no premiums for it.)
These definitions are not just bureaucratic wordplay. They really matter if you have an HSA from your employer and you want to continue to use it and contribute to it after age 65 while you’re still working. Here’s how they apply to different circumstances:
- If you’re eligible for Medicare but have not filed an application for either Social Security retirement benefits or Medicare, you need do nothing. You can continue to contribute to your HSA after age 65 and postpone applying for Social Security and Medicare until you stop working. There is no penalty for this delay.