The Perils of Turning Age 65

by William G. (Bill) Stuart

You’re a month away from your milestone 65th birthday, and life is good. You remain at work and plan to do so for several more years, whether because you love what you do or you fear your retirement savings won’t cover the lifestyle that you want to live. You continue your coverage on your employer’s HSA-qualified medical plan and appreciate both your employer’s monthly contribution to your Health Savings Account and the tax savings that you enjoy when you contribute a portion of your income to the account.

Fast forward a few months. You’re still working and still enrolled on the group medical plan. But your employer’s contribution to your account has stopped, and you can’t make additional contributions to reduce your taxable income and boost your Health Savings Account balance.

What happened?

Health Savings Accounts and Medicare don’t mix. Often you can protect your account from the risks that Medicare poses by not enrolling when you’re first eligible. But you don’t always have the choice to defer Medicare coverage, even if you want to do so.

Working Seniors, Social Security, and Medicare

If you continue to work and supplement your pay by drawing Social Security benefits, you’re automatically enrolled in Medicare Part A (inpatient, home health, and hospice coverage) and Part B (coverage for outpatient services). You can waive Part B – and you probably will, since it costs at least $135.50 in monthly premium and probably provides little benefit beyond what your group plan covers. But you can’t waive Part A, for which you pay nothing because you’ve prepaid your premium through years of payroll (FICA) taxes.

Under Health Savings Account rules, Medicare is disqualifying coverage. Even though you’re enrolled in Part A only, and even though your HSA-qualified group plan is the primary insurer (claims are submitted to it first, then to Medicare), you’re disqualified from making or receiving additional contributions to your Health Savings Account.

You can still take advantage of all the other benefits that your employer offers, including medical, dental, and vision coverage; voluntary benefits; short-term and long-term disability coverage; long-term care and life insurance; and a Health FSA and commuter benefits. The only benefit that you lose as a result of your mandatory Medicare enrollment is your opportunity to make and receive Health Savings Account contributions.

As your younger co-workers (or older co-workers who are fortunate enough to earn income sufficient to delay receiving Social Security benefits) deposit their employer contributions and their pre-tax payroll contributions to their Health Savings Accounts, you face the same out-of-pocket financial responsibility without these additional funds.

Smaller Companies and Medicare

Working seniors employed at companies with fewer than 20 employees face a similar risk, even when they’re not collecting Social Security benefits.

Under federal law, Medicare is the primary coverage for seniors working at these small companies, even if workers remain enrolled on the employer-sponsored plan. If a working senior is enrolled in Medicare Part A or Part B or both, medical providers send claims to Medicare first. Once Medicare pays its share, the provider sends the claim to the employer’s plan for any additional payment.

Federal law doesn’t require working seniors at small companies to enroll in Medicare. But many insurers force Medicare-eligible workers to enroll in Part A and Part B as a condition of remaining on the group plan. These working seniors can’t receive make or receive additional contributions to their Health Savings Account, as their co-workers can.

Finding a Solution

During the past several years, Congress has considered several bills that would address these issues.

In July 2018, the House of Representatives passed the Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act of 2018 HR 6311. Section 3 of the bill allows seniors who are otherwise HSA-eligible and enrolled in Medicare Part A to make and receive contributions to their HSAs. This bill helps working seniors who rely on Social Security benefits (because they’re forced to enroll in Part A only), but it doesn’t address the small-employer problem (because insurers can require them to enroll in Part B as well to remain covered on the group plan).

The bill passed the House by a vote of 242-176 (as 12 Democrats joined 230 Republicans who voted for the legislation). The Senate never considered HR 6311 before the end of the 115th Congress.

Last month, Rep. Ami Bera (D-CA), a physician, and Rep. Jason Smith (R-MO), introduced the Health Savings for Seniors Act HR 3796. Under this bill, anyone enrolled in Medicare who has no disqualifying coverage would be eligible to make and receive contributions to a Health Savings Account.

The Health Savings for Seniors Act benefits not only these working seniors who are disqualified by involuntary or voluntary enrollment in Medicare, but also extends the benefits of Health Savings Accounts to anyone enrolled in Medicare who meets Health Savings Account HSA eligibility requirements. Read more about this legislation here.