Medicare News: New Bill Looks to Expand HSAs to Medicare Recipients

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If You’re on Medicare and Wish You Could Keep Your HSA, You May Be Able to Do So Soon

Recent Medicare news is providing a glimmer of hope to Medicare beneficiaries who either wish they could retain their HSA account after it’s depleted or start a new one. Members of Congress have recently presented a bipartisan new Medicare bill that would allow Medicare beneficiaries to keep and maintain a HSA account or start one from scratch. 

The introduction of the new Medicare bill, known as the Health Savings for Seniors Act, comes as a welcome bit of fresh Medicare news for seniors who are forced by law to stop contributing to their HSA accounts once they enroll in a Medicare plan. The bill isn’t without certain caveats – which we’ll discuss shortly – but is overall a step in the right direction regarding changes being made to the Medicare program.

Let’s take a look at what this law could mean for current and future Medicare enrollees.

First - What’s an HSA?

HSA is an abbreviation for Health Savings Accounts. An HSA account provides another way for individuals enrolled in health insurance programs to handle copays and other related costs for medical services. It’s like most any other savings account that you contribute money to, but your savings may be used primarily to pay for healthcare expenses.

If you have an HSA account, you know that it can come in handy when tax time rolls around. Your contributions are tax-deductible, all HSA earnings are tax-free, and your withdrawals are untaxed as long as they’re used to cover qualified medical expenses. Many in the United States are coming around to the HSA, with 28 percent of workers enrolled in an HSA account. This is up from 17 percent in 2011, as researchers at the Kaiser Family Foundation discovered in 2021.

You can only contribute to an HSA account if you have a high-deductible health insurance plan. Medicare does not fall under the category of a high-deductible plan, which means that, by law, you cannot contribute to an HSA as a Medicare beneficiary. You’re still allowed to draw funds from your existing HSA to pay medical expenses, but you cannot set up a new account once those funds are depleted, nor can you contribute money to your existing account.

This may be part of the reason why many individuals who are age 65 and eligible for Medicare, yet are still working, opt to delay enrolling until retirement. If they’re enrolled in a high-deductible plan through an employer, they likely have an HSA. They can only continue to build up their HSA* if they delay signing up for Medicare altogether.

*Annual contributions to HSA accounts are limited. In 2022, individuals with individual coverage can contribute up to $3,650, and those with family coverage can contribute up to $7,300. Individuals 55 and older can contribute an extra $1,000 per year.

A Closer Look at the New Medicare Bill - H.R. 3796, or the Health Savings for Seniors Act

Members of Congress have been working for some time to make positive reforms to the Medicare program. Medicare news is filled most every day with potential new bills or ideas that are geared toward positive Medicare reform. For instance, President Biden made Medicare news by calling for Medicare prescription drug cost negotiation. Recently, Medicare reform took another step in a positive direction as the House passed a bill to cap insulin prices at $35 per month.

In April, Representatives Ami Bera, M.D. (D-CA) and Jason Smith (R-MO) made Medicare news headlines by reintroducing the Health Savings for Seniors Act, or H.R. 3796. This legislation aims to further Medicare reform by allowing seniors to continue making their current regular HSA contribution or to start a new HSA.

Passage of H.R. 3796 would allow HSA accounts to act as a helpful supplement for seniors who are already enrolled in Original Medicare, Part A and Part B. As Representatives Bera and Brown have presented the bill, allowing seniors to keep making HSA contributions would allow them to have better access to crucial services that Original Medicare doesn’t pay for. It would also help seniors save around 12 percent on every medical cost paid for with funds from their HSA.

This Sounds Great, But What Are the Drawbacks?

One of the major drawbacks to the Health Savings for Seniors Act is its chance to actually become law. Representatives Bera and Brown first introduced H.R. 3796 in July 2019. The bill was never advanced during that congressional session, and it is unlikely that Congress will be interested in advancing it this year, despite support for the bill from several influential senior organizations.

There are also several downsides for seniors attached to this bill. Some of those drawbacks include:

• Excluding Medicare premiums as a qualified medical expense for HSAs
• Repealing the exception that allows seniors to avoid paying a penalty for using HSA contributions on anything other than qualified medical expenses

You Still Have Options to Help Pay Medical Expenses If You Can’t Start or Maintain an HSA

While Medicare currently doesn’t allow you to make regular contributions to an HSA account, and it may stay that way for some time, there are still options that can help you pay for what Original Medicare doesn’t. If you’ve never considered Medicare Advantage, Medigap supplemental, or Part D Prescription Drug plans, you’re passing up a lot of help toward covering your medical expenses.

It’s always a great idea to learn about and compare Medicare Advantage plans in your area. These plans can be of great assistance to you when it comes to paying for things that Original Medicare will not. If you’re interested in learning more, give us a call today at (800) 950-0608 to speak with one of our friendly, experienced, licensed agents!