Compliance Q&A: Medicare and Health Savings Accounts

The tax savings associated with Health Savings Account (HSA) participation is attractive to eligible participants. One common question is whether individuals entitled to Medicare are eligible to contribute to an HSA. Certain health coverage disqualifies individuals from HSA participation, including Medicare coverage. While simply meeting the eligibility requirements for Medicare does not impact HSA eligibility, individuals entitled (eligible and enrolled) to Medicare are ineligible to contribute to an HSA. The complexity does not end there. Individuals may delay Medicare entitlement after turning 65, but for those that do, Medicare entitlement is retroactive. Coverage can start up to six months prior to the date the individual applied for Medicare. This retroactive entitlement will impact HSA eligibility, contribution limits and administration. Individuals and plan sponsors need to plan ahead to avoid making excess HSA contributions. These issues and more are explored in this Q&A.