How to Use Your HSA to Pay Medicare Premiums

How to Use Your HSA to Pay Medicare Premiums
Mike Valles
If you are considering getting a high-deductible health plan (HDHP), you may wonder if you can use it to pay for Medicare premiums. The answer is a little complicated, but you cannot pay it directly from your paycheck. That money goes to Medicare to cover the cost of Medicare parts A and B. You may also have Part D, which is their drug plan.

Enrolling in Medicare

Once you enroll in Medicare, you cannot contribute anymore to your health savings account (HSA). It does not matter if you continue to work and are only enrolled in Part A. United Healthcare says that when you enroll in Medicare, they will make your coverage retroactive for as much as six months earlier, and you should stop your contributions six months before your Medicare coverage starts.
Even though you cannot contribute more to your HSA health insurance, the money in the account will continue growing, and you can still use the money. After you turn 65, you can use the money in your HSA to pay for medical expenses. Withdrawals are tax-free for qualified medical needs. The tax-free withdrawals enable you to continue saving money on all medical expenses.

Money Can Be Used for Anything After 65

Money still in your HSA account can be used for any purpose without a penalty after you turn 65. Withdrawals count as regular income, so it is necessary to pay taxes on it, but there will not be any penalties.

HSA-Covered Medical Services

Besides your basic medical services such as doctor visits, copays, testing, and more, you can even get services that Medicare does not cover. Among other things, it covers:
  • prescriptions
  • vaccinations
  • lab fees
  • hospital visits
  • dental and vision care
  • wellness care
  • treatment for drug or alcohol abuse
  • family planning
  • over-the-counter medications (not supplements)
  • allergy medications
  • health insurance premiums
  • menstrual products
  • and much more
Fidelity lists many of the products and services that are HSA-qualified.
There is an entire website devoted to selling HSA-approved items. You can use your debit card at the HSAstore, and Amazon has a section just for HSA health insurance plans.

Paying for Medicare Premiums

An HSA will pay for health insurance premiums. Because it will not pay for Medicare directly, you can reimburse yourself for the cost of the premiums. Fidelity says that you can also use funds from an HSA to pay for COBRA and long-term care insurance—which Medicare does not cover.
There is another type of coverage that you cannot reimburse yourself for from an HSA. You cannot reimburse yourself for money paid to buy Medicare supplement policies, also known as Medigap policies,

Get Reimbursed for Previous Expenses

If you have been on Medicare for some time but did not know that you could get reimbursed for those premiums or other qualified medical expenses, RetireMed says you can get reimbursed at any time. Make sure that they are qualified expenses and keep any receipts you get for them.
There is a limit to withdrawing funds for previous expenses. Kiplinger says you can only get reimbursed for expenses that occurred after you opened the HSA.

Contribute Now to Cover Expenses Later

After you turn 65, it may not be long before you start seeing an increase in doctor visits and medications you or your spouse needs. Once you retire, you may have a limited income, and being able to use tax-free funds from your HSA to cover those expenses will help keep your medical costs down.
The money you put into an HSA is tax-deductible, which reduces your taxes when you make contributions. TheMedicareFamily says that any contributions you make after you start getting Medicare will get taxed at a rate of 10 percent.

Interest Rates on HSAs

The interest you can earn while your money is in an HSA is considerably lower than what you might earn on other investments. It is based on a tier system, depending on how much you have in the account. Rates average from 0.1 percent to 0.26 percent per year.
When it comes to taxes, however, Morningstar says that the interest and tax savings are overall better than an IRA or 401(k). Although not immediately evident, if you spend $20,000 on medical expenses from your HSA, it means you earned and paid $20,000 without paying any taxes on it.

Qualifications for a Health Savings Account

Before you can get an HSA, Humana says you need to meet four qualifications. In 2024, they are:
  • Coverage by a high-deductible health plan—the policy must have a minimum deductible of $1,600 for an individual and $3,200 for a family.
  • You cannot be enrolled in Medicare.
  • You cannot be claimed as a dependent by someone else.
  • You are not covered in your spouse’s health policy (non-HDHP).

HSA Contribution Limits

The contribution limits for an HSA are usually changed yearly to keep up with inflation. In 2024, individuals can contribute up to $4,150, and families can contribute up to $8,300. People who are 55 or older can contribute another $1,000 per year.

Any contributions made by your employer must be subtracted from the total contribution limit. If they pay $750, your contribution limit becomes $3,400, unless you are 55 or older, then you can contribute up to $4,400.

Before getting an HSA—unless it is with your employer, check around for the best interest rates and fees. Companies vary on coverage, investment opportunities within your HSA, minimums needed, and the tiers. If an employer makes contributions, that will help lower your contribution cost, and it will help grow your account faster.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
Mike Valles has been a freelance writer for many years and focuses on personal finance articles. He writes articles and blog posts for companies and lenders of all sizes and seeks to provide quality information that is up-to-date and easy to understand.
Related Topics