Planning Aids the Transition to Medicare When the Six-Month Retro Rule Applies
By William G. Stuart | Originally posted on LinkedIn for MaxHSA
An unusual provision in Medicare law complicates planning for working seniors who want to continue to fund a Health Savings Account until they retire and enroll on Medicare.
Health Savings Accounts and Medicare are as compatible as oil and water. That is, no matter how you try to mix them, the two elements remain in their prior state. And that's a problem, because Health Savings Account owners cannot fund their accounts for months that they are enrolled on Medicare Part A, which covers inpatient, home health, and hospice services.
This disqualification holds even when individuals are covered on an HSA-qualified plan and do not submit claims to Medicare. What's worse, some seniors are automatically enrolled on Part A. And sometimes that enrollment is retroactive, which can wipe out months of Health Savings Account eligibility for which the account owner has already contributed.
What Is the Six-Month Retro Rule?
When you enroll on Part A after you turn age 65, your coverage is automatically applied retroactively, up to six months. This concept makes little sense, which is why many people do not understand it. After all, your new auto insurance policy does not cover accidents that occurred up to six months prior to your binding coverage. Nor do you heirs collect the face value of your life insurance policy if they apply for coverage up to six months after you die.
When Does the Six-Month Retro Rule Apply?
The key phrase is "up to six months' retroactive coverage." Let's break down two important concepts.
First, the relevant date is not the first day of the month that you are enrolled on Part A, but rather the month that you submit your application. For example, if you apply in April for June 1 coverage, your retroactive period is counted back from April.
Second, the length of your retroactive period depends on your age:
If you enroll on coverage effective the first day of the month of your 65th birthday, when you are initially eligible, you have no retroactive coverage. Medicare does not apply before age 65 (except in the case of certain disability).
If you submit your application at age 65 and six months or older, your retroactive period of coverage is the full six months.
If you submit your application at age 65 and five or fewer months, your retroactive period of coverage extends back to the first day of the month of your 65th birthday. Your period of retroactive coverage could be one, two, three, four, or five months.