When employees become eligible for Medicare, it’s important to understand how this affects their Health Savings Account (HSA) contributions. Below is an overview to help you support employees as they approach Medicare eligibility.
Medicare Enrollment and HSA Eligibility
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Enrolling in Medicare (any part)
Once an employee enrolls in any part of Medicare, they are no longer eligible to contribute to an HSA. This restriction begins with the first month of Medicare enrollment.- Employees may continue to use existing HSA funds for eligible expenses.
- They just cannot contribute new funds (nor can their employer contribute on their behalf).
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Age 65 without Medicare enrollment
Employees 65 or older who do not enroll in Medicare may remain eligible to contribute to an HSA, provided they continue to meet all other requirements (e.g., enrollment in a qualified high-deductible health plan).
Retroactive Coverage Considerations
When someone enrolls in Medicare after age 65, their coverage may be applied retroactively up to 6 months from their enrollment date (but not earlier than the month they turned 65).
Because of this retroactive coverage, employees should:
- Stop contributing (or receiving contributions) 6 months before they plan to retire or enroll in Medicare.
- Be aware that any contributions made during a retroactive coverage period may be considered excess contributions by the IRS.
Contribution Limits and Proration
If an employee enrolls in Medicare mid-year, their annual HSA contribution limit is prorated based on the number of months they remained eligible.
Example (IRS Publication 969):
- The employee turns 65 in July 2024 and enrolls in Medicare.
- They had self-only HDHP coverage and were eligible for the $1,000 catch-up contribution.
- Contribution limit: $2,575 ($5,150 × 6 ÷ 12).
Once enrolled in Medicare, the contribution limit becomes $0.
Enrollment Definition
- Enrollment means coverage is active under Medicare.
- Simply turning 65 does not trigger ineligibility. It begins when the individual is actually enrolled.
- Not everyone is penalized for delaying Medicare. Employees with group-sponsored coverage may be able to delay Social Security and Medicare enrollment without penalty. For more information, see this Medicare article: Working Past 65