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There’s a renewed push in Congress to let Medicare beneficiaries put aside pretax cash for medical bills.
Called the Health Savings for Seniors Act and launched this month in the House, the bipartisan bill revives previous legislative efforts to let people on Medicare contribute to health savings accounts, or HSAs, which they at present can’t do. Yet with a rising variety of staff utilizing these accounts, extra persons are possible to attain age 65 — the purpose at which you turn out to be eligible for Medicare — with an HSA in tow.
“Many shoppers who’ve established HSA accounts suppose that they will proceed funding the HSA previous enrollment in Medicare,” mentioned Elizabeth Gavino, founding father of Lewin & Gavino and an unbiased dealer and common agent for Medicare plans. “They’re often stunned to discover out they can’t.”
The bill does include a tradeoff: It would take away the flexibility to use HSA withdrawals to pay for Medicare premiums — one thing that’s at present allowed. It additionally would remove penalty-free withdrawals for nonmedical bills in the 65-and-older crowd as now permitted.
At the top of 2021, there were 32 million of these accounts — up 8% from 2020 — holding an combination $98 billion, in accordance to a latest report from funding marketing consultant Devenir. Annual contributions to HSAs for 2022 are restricted to $3,650 for somebody with particular person protection and $7,300 for household protection. People age 55 or older can put an additional $1,000 in per 12 months.
HSAs include a triple tax profit: Contributions are tax-deductible, earnings are tax-free, and withdrawals are also untaxed so long as they’re used to cowl certified medical bills. Roughly 28% of staff are enrolled in such a plan, up from 17% in 2011, in accordance to 2021 analysis from the Kaiser Family Foundation.
However, you may solely contribute to an HSA in case you have a so-called high-deductible health care plan — and Medicare protection doesn’t fall in that class. Beneficiaries are permitted to use their HSA funds to pay for medical bills, but can’t arrange a new HSA or contribute to one.
While people who find themselves nonetheless working can join Medicare at age 65, many select to continue using their employer’s health plan alongside Medicare Part A (hospital protection) and, maybe, Part B (outpatient care). If it is a high-deductible plan paired with an HSA, they will proceed making these pretax contributions to the account provided that they delay signing up for Medicare altogether.
“A lot extra corporations are going to high-deductible plans, and a lot extra persons are working longer,” mentioned Kathleen Holt, affiliate director for the Center for Medicare Advocacy. “And they’re stumbling into these guidelines round HSAs.”
For 2022, a high-deductible health plan is one with a deductible of no less than $1,400 for a person or $2,800 for household protection, with most annual out-of-pocket prices (not counting premiums) of not more than $7,050 (for a person) and $14,100 (household plan). That excludes out-of-network prices.
The Medicare program does have one thing comparable to HSAs referred to as medical savings accounts, though they aren’t broadly used — roughly 5,600 beneficiaries have been in health plans that used them in 2019, in accordance to the Kaiser Family Foundation.
These so-called MSAs are paired with a high-deductible Medicare Advantage Plan (which some beneficiaries select), however people can’t contribute to the account. The insurer that gives the plan makes the contributions — an quantity that may fluctuate from 12 months to 12 months — and you may make tax-free withdrawals to cowl medical bills.
Also, MSA plans don’t embody Part D prescription drug protection, in accordance to the Centers for Medicare and Medicaid Services.
It’s unsure whether or not the House bill will acquire any momentum. While the 2019 model of the measure gathered co-sponsors, it by no means made it out of committee.