Recognizing the problem, U.S. Senator Orrin Hatch and Representative Erik Paulsen proposed legislation last month that would allow HSA-eligible seniors enrolled in Medicare Part A (only) to continue to contribute to their HSAs.
The HSA complication is bound to arise more often as the huge baby boom generation retires, and as high-deductible insurance linked to HSA accounts continues to gain popularity among employers. High-deductible plans come with lower premiums - the average premium for individual coverage in a high-deductible health plan coupled with a savings option last year was $5,567 (the employee share was $868), KFF reports. By contrast, the comparable average premium for a preferred provider organization was $6,575 (with workers contributing $1,145).
Some experts also pitch HSAs as a tax-advantaged way to save to meet healthcare costs in retirement––although the HSA’s main purpose is to help people meet current––year deductible costs, and employers often make an annual contribution for that purpose.
So far, there is not much evidence that large accumulations are building in the accounts. The average account total balance last year was $14,035, according to Devenir. The limits on contributions are one reason for that.
Deciding to delay a Medicare enrollment depends on your individual circumstances.
If you work for an employer with fewer than 20 workers, Medicare usually is the primary insurer at age 65, so failing to sign up would mean losing much of your coverage––hardly worth the tax advantage of continued HSA contributions.
If you work for a larger employer, Medicare coverage is secondary, so a delayed Medicare filing is more feasible so long as you or a spouse are not enrolled in Social Security. (Also make sure that the account in question is an HSA and not a Health Reimbursement Account. The latter is not a savings account and does not bring the Medicare enrollment problem into play.)
“We usually advise people to talk it over with a tax expert - it’s more of a tax issue than a health insurance question,” said Casey Schwarz, senior counsel for education and federal policy at the Medicare Rights Center, a nonprofit advocacy and consumer rights group.