Answers to Questions About Health Savings Accounts and Medicare

Readers had a lot of follow-up questions to the column about how much families can contribute to a health savings account, especially about how the rules coordinate with Medicare. Here are answers to a few more questions:

I have an HSA-eligible health insurance policy now, but I’ll be turning 65 later this year and will be signing up for Medicare then. How much can I contribute to an HSA for the year? You can’t contribute to an HSA after you enroll in Medicare, so your contributions for the year will be prorated based on the number of months you had eligible health insurance coverage before you signed up for Medicare. If you had an HSA-eligible policy for, say, the first six months of the year before enrolling in Medicare, you could contribute half of the annual HSA limit. If you had family coverage, that would work out to $3,450 (half of the $6,900 limit for the year); if you had single coverage, it would be $1,725 (half of the $3,450 limit). You’d also be able to make half of the $1,000 annual catch-up contribution available to those age 55 and older.

My wife and I have HSA-eligible family coverage, but I’m about to turn 65 and sign up for Medicare in April. My wife, who is two years younger than me, will be switching to a high-deductible policy with single coverage. How much can I contribute to an HSA, and how much can she contribute? This is a complex issue that I’ve received several questions about, and it applies to many couples who have been covered by the older spouse’s policy. If you sign up for Medicare when you turn 65 in April but had an HSA-eligible family policy for the first three months of the year, then your contribution limit would be prorated based on 3/12 of the $6,900 annual limit for family coverage (3/12 x $6,900 = $1,725). Because you’re at least 55, you’d also be able to make 3/12 of the $1,000 yearly catch-up contribution, or $250, bringing your total contribution limit to $1,975, says Roy Ramthun, president of HSA Consulting Services. Also, because you had family coverage for those first three months, the $1,725 could be split however you wished between your HSA and your wife’s HSA, but all of the $250 catch-up contribution would have to go to your own HSA.

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Your wife will need to do a separate calculation to figure out how much she could contribute to her HSA based on her single coverage for part of the year. If she has single coverage for nine months (from April through December), she’d be able to contribute 9 /12 of the $3,450 annual limit for individuals, or $2,587.50. She’d also be able to contribute the full $1,000 catch-up contribution because she would have been covered by an HSA-eligible policy for the full year, says Ramthun. Altogether, she would be able to salt away $3,587.50 into the health account in this scenario.

I’m on Medicare, but my wife is in her fifties and is covered by an HSA-eligible health insurance policy. Can she use HSA money tax-free to pay for my Medicare premiums and other HSA-eligible medical expenses? She can use HSA money tax-free to pay for eligible expenses for herself, her spouse and her dependents, so she can use money in her health account to pay for your out-of-pocket medical expenses, such as vision and dental care, as well as co-payments for medical care or prescription drugs. But HSA money can be used tax-free for premiums for Medicare parts B and D and Medicare Advantage only if the account owner is 65 or older. Because it’s her account and she is only in her fifties, she can’t do it. After she turns 65, she can use those tax-free dollars for Medicare premiums—her own as well as yours. “This is something people need to think about when they get closer to age 65,” says Ramthun.

For example, had you both been covered by an HSA-eligible family policy before you signed up for Medicare, you could have divided the contribution limit for family coverage in any way you wished between the two of you. Some of the money could have gone into your wife’s HSA, while the rest could have been deposited into your account and later used to pay your Medicare premiums, even though your wife is younger. (Any catch-up contributions, though, must go into the account of the person making them.) For more information about HSAs, see FAQs About Health Savings Accounts.