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 Health Savings Accounts (HSAs) are offered to workers enrolled in
high-deductible health insurance plans. The accounts are used
primarily to meet deductible costs; employers often contribute and
workers can make pretax contributions up to $3,350 for individuals,
and $6,750 for families; the dollars can be invested and later spent
tax-free to meet healthcare expenses.
Twenty-four percent of U.S. workers were enrolled in high-deductible
health plans last year, according to the Kaiser Family Foundation -
and 15 percent of them were in plans coupled with an HSA. That
compares with 6 percent using HSA-linked plans as recently as 2010.
Assets in HSA accounts rose 25 percent last year, and the number of
accounts rose 22 percent, according to a report by Devenir, an HSA
investment adviser and consulting firm.
But as more employees work past traditional retirement age, some
sticky issues arise for HSA account holders tied to enrollment in
Medicare. The key issue: HSAs can only be used alongside qualified
high-deductible health insurance plans. The minimum deductible
allowed for HSA-qualified accounts this year is $1,300 for
individual coverage ($2,600 for family coverage). Medicare is not
considered a high-deductible plan, although the Part A deductible
this year is $1,288 (for Part B, it is $166).
That means that if a worker - or a spouse covered on the employer’s
plan - signs up for Medicare coverage, the worker must stop
contributing to the HSA, although withdrawals can continue.
The normal enrollment age for Medicare is 65, but people who are
still working at that point often stay on the health plans of their
employers (more on that below). In certain situations, the worker or
a retired spouse might enroll for some Medicare benefits. Moreover,
if the worker or spouse claims Social Security, that can trigger an
automatic enrollment in Medicare Part A and B.
That would require the worker to stop contributing to the HSA - and
the contributions actually would need to stop six months before that
Social Security claim occurs. That is because Medicare Part A is
retroactive for up to six months, assuming the enrollee was eligible
for coverage during those months. Failing to do that can lead to a
tax penalty.
"The Medicare problem is a basic flaw in the way HSAs are designed,"
said Jody Dietel, chief compliance officer of WageWorks Inc, a
provider of HSA and other consumer-directed benefit plans to
employers.
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.
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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.
(This story has been refiled to correct the family limit to $6,750
from $5,640 in second paragraph)
(Editing by Matthew Lewis and Frances Kerry)
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