HSA Savings for Seniors Who Want to Work Longer

Frustration continues for working individuals 65 and older who are required to stop HSA contributions once enrolled in Medicare, but legislation is pending to fix that.

One of the most frustrating components of Medicare interactions with health savings accounts (HSAs) involves seniors who want to keep working and keep saving in an HSA plan. Labor force participation among people 65 and older rose in February 2019, climbing to 25.2% from 24% in February 2018, according to the U.S. Bureau of Labor Statistics.

If working seniors elect to take Social Security benefits, they are automatically enrolled in Medicare A. Kevin Robertson, senior vice president, chief revenue officer, HSA Bank says, “If you do not want that to happen, you have to take an active effort to disenroll from Medicare. As soon as these participants are covered by Medicare, their ability to contribute to an HSA ceases—many participants are not aware of this.”

According to Robertson, participants who work in a company with fewer than 20 employees have no choice but to go with Medicare. But for participants working for organizations with more than 20 employees, there are efforts underway to fix this. There have been multiple bills over the years, with multiple iterations.

Robertson says, “The last bill passed the house before the midterm elections.” In July 2018, three bills related to consumer-directed health care plans (CDHPs) were passed by the House Ways and Means Committee. The bills were brought forward to the House, and two were passed soon after introduced. The provisions in H.R. 6311: “Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act of 2018” was written to allow participants enrolled in Medicare Part A and a qualified high-deductible health plan (HDHP) to continue making HSA contributions after Medicare enrollment. This will alleviate frustration for working individuals 65 and older who were previously required to stop contributions once enrolled in Medicare.

J. Kevin A. McKechnie, executive director, HSA Council at American Bankers Association, says, “Every day 10,000 people become eligible for retirement and some portion of those people have an employer HSA and want to keep contributing to it because they are going to work longer. The ability to get the tax savings plus continue to save for health care costs when they are in retirement is important. But being eligible for Medicare is a disqualifying quality for being eligible to contribute to your account.” Currently, McKechnie says, these workers can keep their HSAs and use them for health care expenses, but they cannot make additional contributions.

Should legislation pass Congress, it would not only help these participants, but it would save the government money. “It’s a saver for the government. It’s in President Trump’s budget. If legislation passed, employees would not be using Medicare first. They would be using it second. The portion of people who are in the HSA plan, stay in the HSA plan. That’s our goal and that’s why it attracted bipartisan votes. Two of the Democrats supporting these bills in the Republican House last summer are now freshman Democratic Senators,” McKechnie says.

The bill will need to pass the House again. It is a revenue bill so it has to start in the Ways and Means committee by constitutional dictate. He adds, “There is a debate in the House leadership about sending a revenue bill to the Senate because that would allow the Senate to put their own provisions in it or strip everything out and send it back which doesn’t mean that you have to do that but in the dynamics of how Congress works, if there is anything in the revenue bill that has to happen, when the Senate sends it back as a take it or leave it proposition, at the end of next year, it is not as favorable a position for the Democratic house to be in. Therefore, the House is reluctant to send bills over now. “

Robertson says this issue is on a difficult road right now. “The reason is we have a very polarized Congress. Anything having to do with health care is a pretty contentious issue and heading into a presidential election next year, I see a difficult road for either party to want to undertake health care issues before the presidential election. If it happens, it would happen sometime between now and September. After September, both parties are going to be full in presidential-election mode and we’re not going to see anything meaningful happen.”