Health Savings Account (HSA)

 

A Health Savings Account (HSA) is a type of savings account like an IRA that lets you set aside money on a pre-tax basis to pay for qualified medical expenses.

By using untaxed dollars in a HSA to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs. HSA funds generally may not be used to pay premiums.

While you can use the funds in an HSA at any time to pay for qualified medical expenses, you may contribute to an HSA only if you have a High Deductible Health Plan (HDHP) – generally a health insurance plan that only covers preventive services before the deductible.

For 2020, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family. When you view plans in the Marketplace, you can see if they’re “HSA-eligible.”

For 2020, if you have an HDHP, you can contribute up to $3,550 for self-only coverage and up to $7,100 for family coverage into an HSA. HSA funds roll over year to year if you don’t spend them. An HSA may earn interest or other earnings, which are not taxable.

Some health insurance companies offer HSAs for their HDHPs. Check with your company. You can also open an HSA through some banks and other financial institutions.

HSA funds are not taxed when they are withdrawn from the HSA as long as they are used to pay for qualified medical expenses.

 

Your current employer may oversee your HSA or you may have an individual HSA that is overseen by your bank, credit union or insurance company.

If you have an HSA and you will soon be eligible for Medicare, it is important to plan ahead and understand how enrolling in Medicare will affect your HSA.

 

 

The month you enroll in Medicare Part A (typically the month of your 65th birthday), the account overseer switches the contributing balance to your HSA to zero dollars per month.

 

By law, people with Medicare are not allowed to put money into an HSA. This is because you must have a high deductible health plan if you are putting money into an HSA and since Medicare will cover costs before your deductible, you no longer meet this criteria.

The good news is you may withdraw money from your HSA after you enroll in Medicare to help pay for medical expenses (deductibles, Part B premiums, copays or coinsurances). If you use the account for qualified medical expenses, it will continue to be tax-free.

 

Whether you should delay enrollment in Medicare so you can continue contributing to your HSA depends on your circumstances. If you work for a small employer (fewer than 20 employees) or if you are self-employed you willneed to enroll in Medicare when you first qualify even though you will lose the tax advantages of your HSA.

 

Health care coverage from small employers or individual plans pay secondary to Medicare. This means that if you fail to enroll in Medicare when you are first eligible, you may have little or no health coverage.

 

Health care coverage from large (20 or more employees) employers pays primary before Medicare so you may not need to have Medicare in order to pay your health expenses. This means that if you are currently working for a large employer and you wish to decline Medicare Part A and/or B, you can do so and enroll in Part B later when you lose your current employer coverage.  [Read more about working past age 65.]

 

New Hampshire has a Medicare Plan similar to your HSA called a Medicare Savings Account (MSA) Plan.   This plan works differently in that instead of you setting money aside for the HSA account, Medicare deposits the money in the account – and you keep it!

 

Medicare Medical Savings Account (MSA) plans are high-deductible healthcare plan that the federal government pays to administer Medicare benefits.

 

Like all Medicare Advantage plans under Part C, MSA plans must provide you with the same benefits, rights, and protections as Original Medicare, but they may do so with different rules, restrictions, and costs.

 

Some MSAs offer additional benefits, such as dental, vision and hearing care but unlike other Medicare Advantage Plans, MSA plans include both a high deductible health plan (HDHP) and a bank account to help pay your medical costs.

MSA plans also come with a bank account where Medicare deposits funds once each year for your medical expenses, which you can use to pay for your deductible.

• Your plan chooses the bank account and the amount it contributes. 
• Funds contributed to an MSA are not taxed, as long as they are used to pay for qualified medical expenses.
• Unlike an HSA, you cannot deposit more money into the account. Once you have used the money in the account, you have to pay out of pocket until you reach your deductible.
• After reaching your deductible, your MSA plan covers 100% of the cost for Medicare-covered services.

MSA plans do not have provider networks so you may see any doctor, specialist or hospital that accepts Medicare.

Medicare MSA plans are currently only available in New Hampshire but due to their popularity I am confident they will come to Maine very soon.

In my personal opinion, MSA plans are one of the most consumer-friendly products available in the whole Medicare Advantage space – if not the whole of Medicare.