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I will continue to work after turning 65. My employer’s health insurance is a high-deductible health plan paired with a health savings account. How would this fit in with Medicare?

En español | An increasing number of employers are offering high-deductible health plans with health savings accounts (HDHP-HSAs) to employees. But under IRS rules, you cannot contribute to an HSA in any month that you are enrolled in any part of Medicare — Part A, Part B or Part D. You can draw on funds already in the account, but you can’t add to them. However, there are ways you can get around this restriction and continue contributing to your HSA at work:  

  • Delay signing up for Part A and Part B. As you have insurance from an employer for which you actively work after age 65, you won’t receive late enrollment penalties if you sign up within eight months of the employment ending.
  • Delay applying for Social Security benefits (retirement, disability or spousal). If you apply for any of these, Social Security will automatically enroll you in Medicare, and you cannot opt out of Part A while receiving Social Security benefits. The only way of opting out of Part A is to pay back to the government all the benefits you’ve received to date, which effectively rules out health savings accounts for people who are entitled to Medicare on the basis of disability and return to work.
  • Delay signing up for Part D prescription drug coverage. If you don’t enroll in Part A or Part B, you’re not eligible for Part D anyway and therefore you cannot be penalized for late enrollment, even if the employer drug coverage is not “creditable” (considered as good as Part D), provided that you sign up with a Part D drug plan within two months of losing your employer’s coverage.
  • Stop contributing to your HSA six months before you plan to apply for Social Security retirement benefits. This is because Social Security will give you retroactive Medicare Part A coverage of up to six months, depending on when you turned 65. If you continue contributing to your HSA after the effective date of Part A coverage, the IRS will tax you on the contributions you made beyond that date.

Note that the IRS rule applies only to the employee who is contributing to an HSA from pretax earnings. It does not apply to the employee’s spouse, who remains free to enroll in Medicare and use funds in the HSA without triggering tax penalties.

For more information, see the AARP article “Can I Have a Health Savings Account as Well as Medicare?”.

See also IRS publication 969, “Health Savings Accounts and Other Tax-Favored Health Plans”.

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