Can Employers Contribute to HSAs of Workers Covered on Medicare Part A?
By William G. Stuart | Originally posted on LinkedIn for MaxHSA
Part A enrollees cannot continue to contribute to a Health Savings Account. Can their employers?
A benefits advisor contacted me recently to confirm her understanding of Health Savings Account law. She had been advised that when employees are enrolled on a Part of Medicare and therefore no longer eligible to contribute to a Health Savings Account, their employers can continue to contribute on their behalf. Here is the documentation that the advisor was given:
Now, can your employer still contribute to your HSA if you are on Medicare? The answer is yes, but with a few caveats:
Your employer can continue to make contributions to your HSA even if you are on Medicare.
These contributions are still tax-deductible for your employer.
However, you cannot use these employer contributions for Medicare premiums or any other non-qualified medical expenses.
Is this information accurate? Let's dig into it.
Medicare and Health Savings Account Eligibility
Section 223 of the Internal Revenue Code makes clear that Health Savings Account owners cannot contribute for any month that they are covered on Medicare. The Code does not distinguish between Medicare Part A (inpatient, hospice, and home-health care), Part B (outpatient services), Part D (prescription-drug coverage), or Part C (the private alternative to traditional Medicare). Enrollment on any Part of Medicare is disqualifying.
Note that the disqualification is due to enrollment on Medicare, not merely Medicare eligibility. A working senior who is not covered on any Part of Medicare (such as the author) who meets all other eligibility requirements can continue to contribute to a Health Savings Account indefinitely.
For many working seniors, the loss of Health Savings Account eligibility is automatic enrollment on Part A when they begin to collect Social Security benefits. Under current practice (nowhere in a law passed by Congress, but rather in administrative rules from the executive branch), Social Security benefit recipients are auto-enrolled on Part A when they are age 65 or older (and this coverage is retroactive if they are enrolled on Part A after they turn age 65).
More than half of all Americans begin to tap their Social Security benefit before they turn age 65. These recipients are disqualified from contributing to their Health Savings Account beginning with the month of their 65th birthday - even if they are covered on an HSA-qualified plan and meet all other requirements. Enrollment on any Part of Medicare is an automatic disqualifier. Always.