How HSAs Can Help Cover Medicare Costs Tax-Free

By Robert Bloink and William H. Byrnes | Originally posted on Thinkadvisor

With healthcare expenses estimated to have increased by 7.9% between 2025 and 2026 alone for those covered by employer-sponsored plans, Medicare costs are no exception. 

Clients, then, should be seeking tax-preferred options to defray those potentially sizable increases once they retire.

Health savings accounts can offer a powerful solution to help offset post-retirement healthcare costs — particularly, Medicare premiums and medical expenses that Medicare doesn't cover. HSA funds can be withdrawn, tax-free, to cover any qualified medical expense, including Medicare premiums that kick in once the client turns 65. 

The rules governing the interaction between HSAs and Medicare can be complicated. As with any strategy, it's important that clients begin planning to obtain the best possible results.

HSA Funding of Medicare Premiums: The Basics

Clients can withdraw HSA funds to reimburse themselves for both current- and past-year Medicare premiums, allowing them to time those withdrawals, As Social Security beneficiaries typically have Medicare premiums deducted from their Social Security checks, they can still withdraw HSA funds to reimburse themselves for those costs.

HSA funds can be withdrawn tax-free to cover Medicare Parts B and D premiums, as well as premiums for Medicare Advantage plans (Part C coverage). Medicare supplement policies, such as Medigap, do not qualify. Similarly, HSAs can't be used to cover penalty costs associated with late Medicare enrollment.

Once clients reach age 65, they can also use HSA funds to reimburse their spouse's Medicare premiums tax-free.

In all cases, it's important to save receipts to prove that the HSA funds were used to cover qualified expenses (including Medicare premiums). Clients aren't required to submit those receipts with their tax returns but should keep the receipts in case of an audit.

HSAs and Contributions After Enrolling in Medicare

HSA contributions are not allowed for individuals enrolled in Medicare if they are on another health plan, including a workplace plan after their age-65 Medicare enrollment date. They're also prohibited from accepting employer contributions to HSAs.

Note that if the client's spouse is eligible to contribute to an HSA, the client can contribute to their spouse's HSA even if they have enrolled in Medicare and are no longer able to contribute to their own HSA. Two spouses can't combine their HSAs, but they can choose which account to tap to cover either spouse's qualified medical expenses.