It’s Time for Seniors to Benefit from a Health Savings Account

Representatives Ami Bera (D-CA) and Jason Smith (R-MO) have introduced bi-partisan legislation (HR 3796 “The Health Savings for Seniors Act”) to allow retired seniors on Medicare to have a health savings account or HSA.  Medicare beneficiaries would be able to fund the account and use it to pay for healthcare expenses in retirement.

Over the last four years, the HSA Council has been working with members of Congress to expand health savings accounts for both working seniors and those in retirement.  One of the first questions I get is “ Why would I want a health savings account when I have Medicare”.  Turns out there are a multitude of reasons.

According to Medicare, a person in average health has $7,850 in healthcare expenses not covered by Medicare.  If you have diabetes or other chronic illness the amount is greater than $10,000 per year.  While these costs include premiums, the out of pocket costs are significant.

I have felt this personally.  My father suffers from memory loss and asked me to take care of his finances after we lost Mom to cancer two years ago. He has Medicare and a Medicare supplemental policy (known as Medigap).  So I thought everything would be pretty much covered, not true.  I write a check every month for $243 for the Medigap plan out of his personal checking account.  Medicare premiums for Part B are taken out of his Social Security check automatically which leaves him with $1483 per month from Social Security. But that wasn’t his only expense.  I am paying around $250 per month for his medications alone, not to mention the dental and vision care bills.  A Medicare HSA would help Dad stretch out his retirement savings by saving him money on these healthcare expenses.

Seniors on average make about $48,000 per year.  Many live Social Security check to Social Security check.  Having an Health Savings Account to help pay for healthcare expenses would save the average senior about $1000 per year.  While it is not a huge amount of money, believe me every dollar counts.

It also turns out that Medicare does not cover dental and vision expenses as well as hearing aids.  A Health Savings Account would allow people to pay for those expenses with tax advantaged dollars and save money.

The second question I get is “Don’t I need taxable income to get the benefits of an HSA?”  The answer is “Yes”, but it turns out most seniors have taxable income.  All distributions from their IRA including forced distributions are taxable.  Some pensions are taxed and Social Security income is taxed in thirteen states. I know a lot of seniors (I am soon to be one) that are still working or are supplementing their retirement income by working part-time.  All that income is taxed.

Offering a Medicare Health Savings Account will allow seniors to fund those accounts and get the tax benefits and savings.  And for those that can’t afford to fund the account or who don’t have taxable income, the account can be funded by their children or other family members. But the point is that these accounts aren’t only for those that can fund them, the point is that having the account allows retirees to pay for their healthcare they need tax free.

There is strong bi-partisan support for this.  A recent poll of registered voters found that 82% support allowing people with an HSA to continue to fund it in retirement.  And 83% supported allowing those retirees who don’t already have an HSA to have one in retirement.

The bottom line is that retired seniors have significant healthcare expenses in retirement. And they are on the rise. They have to pay for those expenses somehow, so let’s help them cover those costs.

Passage of HR 3796 “The Health Savings for Seniors Act” (HSSA) will greatly benefit our retirees.

Bryan Caplan2 Comments