Why Expanding Health Savings Accounts to Medicare Beneficiaries Needs to Happen

By Craig Keohan, CRO, HealthSavings Administrators

One of the most common misconceptions surrounding Medicare is that it is free to beneficiaries. In fact, a recent Nationwide study found that more than half of adults aged 50 and above did not realize they will have to pay for Medicare Part B, even if they’ve worked and paid Social Security taxes for 10 years.

Just like any other type of health insurance, Medicare beneficiaries are subject to out-of-pocket expenses in the form of deductibles, monthly premiums, and coinsurance costs. In fact, according to a recent HealthView study, the average couple retiring at age 65 in 2019 could face up to $387,000 of non-Medicare-covered medical expenses.

Health savings accounts allow account holders to grow medical nest eggs and pay for retirement healthcare costs tax-free, rather than having to withdraw taxable funds from their 401(k) plans. However, current legislation prohibits Medicare beneficiaries from opening health savings accounts or contributing to health savings accounts they already have.

It’s a big problem, and it’s only getting bigger. According to the Kaiser Family Foundation, there are over 40 million people currently enrolled in Medicare, with over 1.5 million people enrolling in 2018 alone. There is no good reason to restrict our seniors’ right to save for their medical expenses just because of the type of health insurance they have, including Medicare.

Remember, to enjoy the benefits of health savings accounts, potential account holders need to be covered by a low-premium qualified health insurance plan that meets the IRS’ required minimum annual deductible. It doesn’t matter whether the health insurance plan is an HMO, PPO, or POS. If it simply meets the IRS’ requirements, the plan is health savings account-qualified, and there is absolutely no reason why the same standard should not apply for Medicare recipients.  

As awareness of this issues builds, this double standard is causing serious concerns for hard-working Americans going into retirement. Why does legislation continue to penalize our citizens that are aging into Medicare, many of whom are still contributing to our national workforce? This population is demanding change and access to the powerful tax savings health savings accounts provide. Congress should value those who have sacrificed to invest and save by giving people who are aging into Medicare the ability to choose how to save for and pay for out-of-pocket medical costs. 

On July 25th, I went to the White House with fellow HSA industry leaders Jim Gandolfo and Dr. Bill West to meet with Theo Merkle, Special Assistant to the President for Economic Policy. Our discussion focused on expanding health savings accounts to allow Medicare beneficiaries the ability to open and continue contributing to their individual health savings accounts. 

In my company, HealthSavings’, customer base, the average 65-year-old account holder has saved over $27,000. These account holders are still interested in continuing to save because they understand the role of health savings accounts in helping them build happy, healthy futures. Just because they will be enrolling in Medicare shouldn’t mean they are prohibited from health savings accounts’ unparalleled tax-saving ability.

In addition, we see confusion among account holders who are nearing 65 and don’t understand how Medicare impacts their health savings account usage. Some liquidate their health savings account accounts, thinking they can’t keep them while on Medicare, while others end up over-contributing due to complicated Medicare enrollment timing regulations. By allowing these account holders to seamlessly maintain their health savings accounts as Medicare beneficiaries, we can offer these account holders well-deserved peace of mind and allow them to focus on retirement.

In July, Rep. Ami Bera, M.D. (D-CA) and Rep. Jason Smith (R-MO) introduced a nonpartisan bill, H.R. 3796 – Health Savings for Seniors Act, which gives Medicare beneficiaries access to health savings accounts. This bill is a huge step in the right direction and something that should have been passed years ago. This bill is not to be confused with the proposals calling for “Medicare For All,” which takes away the right to choose private insurance for over 180 million Americans.   

I am encouraged by the nonpartisan support for H.R. 3796 and hope leaders on both sides of the political aisle will come together to support giving Medicare beneficiaries access to health savings accounts. This isn’t a political issue, it’s about doing the right thing for our hard-working Americans who are aging into Medicare. They deserve choice and control over how they pay for their medical expenses, and health savings accounts are the best way to fulfill that right.