High Deductible Health Plans, HSAs and Medicare.
A growing number of employers are offering employees high deductible health plans (HDHPs) with health savings accounts (HSAs) as one or the only health plan option. Now that a greater number of people are working well past the age of 65 before they retire, questions have come up about how Medicare and HSAs function for the working elderly. The following Q&A addresses these issues:
How does Medicare coverage work once an individual turns 65 (also called working aged) and either they or their spouse are still working and are covered under an employer group health plan (GHP)?
In most cases, Medicare payments are secondary to employer sponsored health coverage offered to employees. An employer with 20 or more full time workers must offer workers aged 65 and over the same GHP offered to employees under the age of 65. Medicare prohibits an employer GHP from taking into account that an individual or his/her spouse that is covered by the plan, by virtue of the individual’s current employment status, is eligible for Medicare.
Working aged employees can accept or reject the employer’s coverage. If a working aged individual accepts the employer GHP, the employer GHP is primary payer and Medicare is secondary for both the employee and the employee’s spouse (if the spouse is also eligible for Medicare).
If a Medicare eligible employee rejects the employer GHP, then Medicare is primary. In this case, the employer GHP is prohibited from paying for supplemental benefits for Medicare covered services so as to not provide any financial incentives for employees to reject the employer GHP in favor of less expensive supplemental coverage.
Do Medicare eligible individuals who are still working need all of Medicare when they turn 65?
When an individual or their spouse is still working after either or both of them turn 65, and work for an employer with 20 or more full-time workers AND receive health benefits through an employer GHP, an individual may not need all of Medicare when they turn 65 and become eligible for Medicare. However, employees are Always advised to check with the employer GHP’s human resource department and your Social Security Office before making any decision about when and what Medicare coverage to take.
Can an individual delay certain parts of Medicare if they or their spouse turns 65 and are still covered under an employer GHP?
Yes. Individuals can delay certain parts of Medicare, and get them later upon retirement, or if they lose the employer GHP.
Who should enroll in Medicare Part A when they turn 65?
Most people who are eligible for Medicare when they turn 65 should sign up for Medicare Part A, even if they are covered under an employer GHP. The advantage of signing up for Medicare Part A when first eligible is that people do not need to worry about it later. Also, as a secondary payer, Medicare coverage could reduce the out of pocket health care costs for the elderly employee or spouse who is covered under an employer GHP. Most people who are eligible for Medicare do not pay a premium for Part A.
Are there situations where a Medicare-eligible person still covered under an employer GHP probably should NOT sign up for Medicare Part A right away?
Yes. Some employers sponsor high deductible health plans (HDHPs), eligible for a Health Savings Account (HSA), as one or the only health plan option offered. If an employee has an HSA-eligible HDHP, they or their spouse may want to delay signing up for Medicare Part A when they turn 65. This decision should be made only after consulting appropriate benefits experts who are familiar with the individual and the plans in question.
What is an HSA?
A health savings account (HSA) is a type of health insurance that combines a high-deductible health plan (HDHP) with a tax-free account to which the employee and the employer can contribute. In order to be eligible for an HSA the HDHP in 2014 must have a deductible of at least $1,250 for self-only coverage and $2,500 for family coverage before plan benefits can be reimbursed.
How does signing up for Medicare Part A impact an HSA?
Under the tax code, individuals who are “enrolled” in Medicare can no longer contribute to an HSA. Medicare enrolled individuals can, however, draw on funds already in the HSA to reimburse for qualified medical expenses. Employers may stop contributing to the HSA of an employee who is enrolled in Medicare. People are advised to Always check with the human resource department of the employer GHP to see how Medicare enrollment may change the employer GHP benefits.
What is the difference between eligible for, entitled to, and enrolled in Medicare?
Being eligible for Medicare means that an individual has met the requirements to qualify for Medicare Part A hospital insurance—in other words, the individual or their spouse has enough Social Security work credits—but has not yet applied for it.
Being entitled to Medicare means that an individual is eligible, they have filed an application to receive Medicare Part A, or have been approved automatically. In many cases an individual’s name is already in the system—or their application has been processed and they have been sent a Medicare card showing the date coverage starts.
Enrolled in Medicare means that an individual has chosen to sign up for Part B—coverage of doctors’ and outpatient services. Also an individual is considered enrolled if they are one of the few people who pay premiums to purchase Part A.
Who should enroll in Medicare Part B?
Most people should enroll in Part B when they first become eligible for Medicare unless they or their spouse are still actively working for an employer with more than 20 full-time workers and are covered under an employer GHP through their job or their spouse’s job. There is no Medicare Part A premium for most people. However, most people pay a monthly premium for Part B coverage that varies according to level of income. An individual may not need Part B coverage right away if they are still covered under an employer GHP. As always, people need to check with the human resources department of the employer GHP in which they are enrolled.
Are there situations where a Medicare-eligible person covered under an employer GHP should NOT sign up for Medicare Part B right away?
If an individual is covered under an employer GHP through their job or their spouse’s job they can delay Part B without a penalty. Once the employer GHP ends due to retirement or a reduction in hours, Medicare eligible individuals have a Special Enrollment Period during which time they can sign up for Part B without a penalty.
Can a Medicare eligible individual continue to contribute to the HSA if they are still working and enrolled in the employer high deductible GHP?
If an individual is eligible for Medicare but has not filed an application for either Social Security retirement benefits or Medicare, they can continue to contribute to their HSA after age 65 and postpone applying for Social Security and Medicare until they stop working. There is no penalty for this delay.
What happens if a Medicare eligible employee has already signed up for Part A without realizing how it could affect contributions to the HSA?
If an individual is entitled to Medicare because they signed up for Part A at age 65 or later, not realizing how it would affect the use of their HSA, but have not yet applied for Social Security retirement benefits, they may be able to withdraw their Part A application. (People are advised to contact the Social Security Administration at 1-800-772-1213 for more information.) There are no penalties or repercussions for withdrawing a Part A application and people can reapply at a future date.
What happens if an individual has applied for, or is already receiving Social Security benefits (receiving Social Security benefits automatically entitles the individual to Part A).
If an individual has applied for or is already receiving Social Security benefits, they can no longer contribute to an HSA. The only way an individual could opt-out of Part A after applying for or receiving Social Security benefits is to pay back to the government all the money they have received in Social Security payments plus everything Medicare spent on their medical claims. These amounts must be repaid before an application to withdraw a Part A application can be processed.
What about an individual who is covered under their spouse’s HSA at work?
The IRS rule affects only employees age 65 or older who have HSAs through their employment, because they are the ones who contribute to HSAs from their before-tax earnings at work. The rule does not affect covered spouses over age 65, who can continue to use funds from the working spouse’s HSA for approved medical purposes.
How much can an employee contribute to an HSA if both the employee and their spouse are enrolled in the HDHP and the spouse is also enrolled in Medicare?
If both the employee and their spouse are enrolled in the HDHP, the employee can contribute up to $6,550, the family coverage limit, for 2014. If the employee is 55 years of age or older, they can contribute an additional $1,000 a year to an HSA.
If a spouse is enrolled in Medicare and not covered by the HDHP, can the employee pay for qualified medical expenses for the spouse from the money that has accumulated in the HSA?
An individual can submit for reimbursement, eligible expenses from the HSA for themselves and their covered dependents even if the dependents are not covered under the employer GHP.
Can a spouse under the age of 65 who is enrolled in their Medicare-enrolled spouse’s HDHP set up an HSA?
A working spouse who has enrolled in Medicare cannot contribute to an HAS but a younger spouse can set up an HSA and contribute the full family maximum of $6,550 for 2014. The employer cannot contribute to the HSA of the spouse. The spouse can also contribute an extra $1,000 per year catch up if they are 55 years or older. Since there is no employer-employee relationship between the employer and the employee’s spouse, the employee would forfeit any employer contribution to the HSA and would not be able to contribute pre-tax dollars to his wife’s account. Instead, the spouse would contribute after-tax dollars and take the deduction as an above-the-line adjustment to income when filing taxes.
http://www.medicare.gov/Pubs/pdf/02179.pdf
http://www.irs.gov/publications/p969/ar02.html#en_US_2013_publink1000204020
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