What happens after an individual enrolls in Medicare?

An individual’s enrollment in any part of Medicare (A, B, C or D) makes them ineligible for HSA contributions, including employer funding. This is true even though Part A is free for most people. The individual becomes ineligible for HSA contributions the first day of the month their Medicare is effective. They must prorate their annual maximum contribution, including catch-up contributions, the year they enroll in Medicare. (Total annual contribution maximum is divided by 12 and multiplied by the number of full months they were eligible.) If the individual is still working, neither their employer nor their spouse (nor anyone else) can contribute any amount that exceeds their eligible prorated maximum after the individual enrolls in Medicare.

However, employees with Medicare should check with their employer to find if they are eligible to sign up for the Healthcare FSA program. The FSA would allow employees who are not eligible for HSA contributions to set aside pre-tax dollars for the current year’s qualified medical expenses. This way, employees with Medicare can preserve their HSA for expenses after they quit working, and the employer and employee still get a tax advantage for the current year’s expenses. Medicare-enrolled individuals can continue to withdraw funds from their HSA tax-free to pay for personal qualified expenses as well as the qualified expenses of their spouse and dependents. This includes their Medicare premiums and/or COBRA premiums, as well as Medicare/COBRA premiums for their spouse/dependents.

Note: HSA funds can never be used for Medigap/Medicare Supplement premiums.