Tom, a long-time friend of Ruth’s, joined Ruth and I for lunch. He was full of questions! He is turning 65 and wanted to talk about his options. He is still working and can stay on his employer’s group health insurance plan. Stay where he is or enroll in Medicare and Medicare products? I asked Tom to tell me about his current health insurance - always a good place to start. He has a high deductible health plan (HDHP) and contributes to a health savings account (HSA). Tom does not like the high deductible but does like being able to contribute to the HSA account. He makes contributions pre-tax and uses those monies to pay for “qualified” medical expenses, plus his unused balance rolls over from year to year.
Let’s talk about HDHP and HSA accounts. Tom must have a HDHP to contribute to his HSA. High deductible health plans have large deductibles that must be met before the insurance company pays. You must pay all or most health care services until you reach that deductible. Then the HDHP should cover your eligible medical expenses. HSA’s were designed as a healthcare savings vehicle that employers and employees may contribute before tax monies to. HSA’s also make HDHP more attractive. Tom’s first question was “If I enroll in Medicare Part A and/or B, can I continue to contribute to my HSA account?” Since the HSA account is only available with a high deductible health plan (HDHP), he would no longer be able to make contributions into his HSA. If Tom enrolls in Medicare Part A and Part B, not only can he no longer contribute to an HSA account but no one else can contribute to it for him. This could be an issue if the HDHP plan is the only option he has with his employer. If Tom chooses to delay Medicare enrollment, since he is working and wants to continue contributing to his HSA, he must also await to collect Social Security retirement benefits. Most people who are collecting Social Security benefits are automatically enrolled in Medicare Part A. Since Tom cannot decline Part A while collecting Social Security benefits, he may want to delay receiving his Social Security retirement benefits. If Tom delays enrolling in Medicare, will he have to stop contributing to his HSA at least 6 months before he enrolls in Medicare to avoid a tax penalty? Is this getting complicated? What about the monies Tom already has in his HSA account? Tom may keep and continue to use those monies for qualified medical expenses. Whether Tom should delay enrolling in Medicare so he can continue contributing to his HSA depends on his circumstances. Since this process can be tricky and complicated, it is very important to consult your tax professional for advice. Understand how enrolling in Medicare will affect you before you make any decisions. Thanks again for calling 501-868-6650 and saying “Caroline, can we talk?’
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AuthorCaroline Beauchamp specializes in personalized life and health insurance solutions. Archives
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