This week’s Medicare Answers addresses what a client should to do when his employer switches to a high-deductible health plan (HDHP) with a health savings account (HSA) and whether or not he should drop his Medicare Plan A. If you have a Medicare question, email AskRoger@SeniorMarketSales.com.
I have a client who is still working and his company is switching to a high-deductible health plan (HDHP) with a health savings account (HSA). In the past, the group insurance was primary, and he had Medicare Part A as secondary. They are telling him he has to drop Medicare Part A. What would be the best advice for my client?
Thank you for your question. HSAs were implemented as part of the Medicare Prescription Drug, Improvement, and Modernization Act in 2004. Even though they’ve been around for 10 years, we’re seeing more corporations moving towards high-deductible insurance and HSA accounts. This could be partly due to the Affordable Care Act (ACA), which is driving companies to save monies on employee plans. The 2013 census shows that the number of people covered by HSA/HDHPs totaled 15.5 million in January 2013, according to America’s Health Insurance Plan (AHIP), the national trade association representing the health insurance industry.
If you enroll in Medicare Part A or B, you no longer may contribute to your HSA. The account overseer switches the contributing balance to your HSA to $0 per month whatever month you enroll in Medicare — typically the month of your 65th birthday. By law, if you have Medicare, you’re not allowed to put money into an HSA — because you generally cannot have any health coverage other than an HDHP if putting money into an HSA. You may, however, withdraw money from your HSA after you enroll in Medicare to help pay for medical expenses, such as premiums and deductibles. The account continues to be tax-free if you use its monies for qualified medical expenses.
As long as you are not accepting Social Security benefits, you can decline Part A and preserve your tax-free HSA. But remember: if you delay enrollment in Medicare when you’re first eligible, you must enroll when you lose your current employer coverage.
You can enroll in Part A as soon as you want to halt contributions to the HSA — and if you’re currently working. MedicareInteractive.org also points out that to avoid a tax penalty, be sure to stop all contributions to your HSA up to six months before you collect Social Security. When you apply for Social Security, Medicare Part A will be retroactive for up to six months — as long as you were eligible for Medicare during those six months.
Postponing enrollment in Medicare Part B until retirement and dropping group health coverage doesn’t really create problems because there’s an eight-month “special enrollment period” to sign up after losing group coverage. The same is true with Part D.
But if you continue to work and are on the employers’ HDHP and are receiving Social Security Benefits, it’s more complicated. The Social Security Administration’s "Program Operations Manual System" states that anyone opting out of Medicare Part A also forfeits all past and future Social Security retirement benefits, according to a benefitspro.com article by Eric Johnson. This means that seniors would stop receiving their Social Security check and would be required to repay any benefits received prior to dis-enrolling from Part A.
So, until something changes, you may want to advise your clients against opting out of Medicare Part A. Yes, they’ll be ineligible to contribute to an HSA, but the tax benefits of an HSA probably are not worth risking their Social Security check.
In some cases, you can delay enrollment in Medicare Part A without having to pay a late enrollment penalty. For those who are eligible for Medicare and have health insurance coverage from an employer with 20 or more employees (100 or more employees for those not eligible due to age), you will not be penalized by a late enrollment fee.
So let’s summarize: If your clients are considering dropping out of Medicare Part A, it can be a good idea in some circumstances if the following is met:
- are 65 or older and not receiving Social Security Benefits
- work for an employer who has 20 or more employees and a HDHP/HSA
Just remember as an agent to be careful to not steer clients too far in one direction or the other.
As the growth rate for HSA and HDHPs is about 15 percent per year, expect more of your working clients over age 65 to ask about dropping Medicare Plan A.