Can I have a HDHP Pan and Medicare Part A and a HSA?

[MinhT]

No, if you are enrolled in Medicare, you are not eligible to contribute to a HSA.

Please read this document for more information:

https://www.medicareinteractive.org/get-answers/coordinating-medicare-with-other-types-of-insurance/...

[CindyKR]

This is the first useful link I've found, MinhT. Thank you!

Could you clarify something for me?

My spouse turns 65 in Dec 2021 this year in a little over a month from now. They are employed at a company with thousands of employees, and they have a family HDHP with an HSA into which they have been having the maximum yearly contribution deposited. Part of the contribution is from the employer in the amount of $1,700/year - deposited once each quarter. They only contribute if my spouse contributes. So, if we don't contribute through October, we won't get $850. We currently have my spouse, me, and 2 adult children on the policy. One adult child will age out at the end of September, leaving 3 of us on the policy.

Because the other offered medical plan has higher premiums and due to the HSA employer contribution, we have felt it important to stay on the HDHP with the HSA. But, due to the possible penalty when my spouse goes onto Medicare, we are confused about how to handle the next year. We have decided to stay on the HSA, but know we might have to pull money back out of the HSA to prevent an excess contribution.

What we don't understand is if we would have to give the employer contribution back to the employer, or if we could withdraw it and keep it as our income. Is that an IRS decision, or is it a question for the employer?

The other thing we are wondering is if I, being younger, should open another HSA and put the money in there, not knowing if I will get another HDHP on the marketplace or some other type of plan. I am not currently employed. One concern is the fees that the HSA administrator will charge. We don't know if it is worth it. Any thoughts on that as far as fee and taxes and such? 

[Critter-3]

You could consider delaying medicare while he is still working ...  https://www.cms.gov/Outreach-and-Education/Find-Your-Provider-Type/Employers-and-Unions/FS3-Enroll-i...

[CindyKR]

My spouse has delayed medicare and social security while working. We understand that. The issue is that even if you delay it until the month after you quit, there is still a 6-month look-back for medicare which can cost you penalties with the IRS if you don't deal with the HSA properly. We just keep getting the run around and keep getting referred back to other people. I've called the IRS. They won't talk about anything at all having to do with healthcare or penalties. Period. I followed every phone tree I could, and it always ended telling me they won't talk to us about it and to see their website. I finally pulled a trick and got to a live person in another department, and they were annoyed and said they can't talk to me about it and to call medicare. When I called medicare, they said talk to the IRS. When I called the HSA Administrator, they didn't even know they had a pdf on their website about the topic. I tried to get clarification on the pdf, and they referred me to the employers HR or a tax advisor. I emailed HR, and they referred me back to the HSA administrator. The only person I haven't called is a tax advisor - because we use TurboTax! It is all insane, which is actually what the pdf said. See this quote:

"Medicare and HSA eligibility

Many individuals are confused at the intersection of health

savings accounts (HSAs) and Medicare. Two different federal

agencies have primary responsibility for these programs — the

Department of Health and Human Services, for Medicare,

and the Department of the Treasury, for HSAs. Each agency

issues rules related to its products without consideration of the

interaction with the other product, leaving Americans confused.

This paper is designed to help you navigate this confusion so

that you remain in compliance with HSA rules."

So, I read the "paper" and am still confused. The employer responded by saying they think we can just put our entire year's worth of contribution into the HSA in the first couple months, and keep it in there if we don't put any in within the 6 months prior to getting on Medicare. But, they were not sure, and I can't trust them to know. They also seem to think we can keep the employer contribution even if it is put in there in the previous 6 months, but, again, they are just guessing. It is very frustrating.

[CindyKR]

That link is a good link, but it is still vague. This is what is says about our situation. 

"NOTE: If you qualify for premium-free Part A, your coverage will go back (retroactively) up to 6 months from when you sign up. So, you should stop making contributions to your HSA 6 months before you enroll in Part A and Part B (or apply for Social Security benefits, if you want to collect retirement benefits before you stop working)."

AND

"! WARNING: If you have a Health Savings Account (HSA), you should stop making contributions to your HSA 6 months before you sign up for Part A and Part B in order to avoid a tax penalty. "

Our situation is this: 
My spouse is allowed up to $8,300 HSA for the year. The employer will contribute $1,700 of that if we have the HSA until at least past Oct 16th. ($425/quarter).

SO, the following 4 question remain:

1. If our employer puts funds in our account in the previous 6-months ($850), is that allowed?
2. If we put our entire year's worth of possible contributions into the HSA ($6,600) between 7-12 months before signing up for medicare, is that allowed without penalty? Or, do we have to limit it to 1/12 per month

3. OR, are we only allowed 1/2 of the total $8,300 for the year (if medicare started on Jan 1 of the following year, for example) = $4,150.
4. What is the actual amount of a penalty? How is it figured? 

[Opus 17]

@CindyKR 

First of all, you need to understand that once you have money in an HSA, you can keep it and spend it for any qualified medical expenses even if you are no longer eligible to make a new contributions.

Generally speaking, Medicare becomes active on the first day of the month in which a person turns 65.  If they turn 65 on the first day of the month exactly, then Medicare becomes active the first day of the previous month.  If your husband‘s Medicare becomes active on December 1, 2021, then he is no longer eligible to make HSA contributions.  His contribution limit is $8200 times 11/12 equals $7516. This represents 11/12 of his family maximum of $7200, +11/12 of his individual catch-up contribution of $1000.  You do not want to over contribute. You must not over contribute for 2021, and he must not continue to make contributions for 2022.

If your husband continues to contribute the $1700, in order to get the free $1700 match, you have to remember to withdraw the entire $3400 as an excess contribution (prior to the filing deadline each year) and pay income tax on it.   Essentially, you are jumping through hoops to get an extra $1700 from the employer. If you forget to make the withdrawal, you will pay income tax plus a penalty and the excess amount that remains in the account will accrue a penalty every year until the account balance is spent down to zero. I would not recommend this as a backdoor way of getting a $1700 raise, I think it has more risks than you appreciate.

Turning to you as an individual, you are also allowed to contribute to an HSA if you are covered by an HDHP, even if you are not the person whose name is on the policy.  Your contribution limit if you are covered by a family HDHP is also $7200 plus $1000 catch-up if you are age 55 or older. The $7200 must be divided between you and your spouse and you cannot go over a combined maximum of $7200, while the $1000 catch-up provision can only be contributed to an HSA in your own name.

Let’s assume your husband allows his Medicare to activate but also remains on the company HDHP. He can’t contribute to an HSA in his name any longer, but you can contribute to an HSA in your name.  If your husband has maximized his HSA contributions for 2021 at $7516, you can still contribute $1600 to your HSA. That represents 1/12 of the $7200 family limit plus your $1000 catch-up contribution.  For 2022, you could contribute up to $8300 to an HSA in your name, as long as you continue to be covered by your spouse’s HDHP.