Proposal in Congress would allow Medicare recipients to continue to add to their HSAs

I am going to write to my Member of Congress about H.R. 3796, the Health Savings for Seniors Act, bipartisan legislation that would allow seniors covered under Medicare to continue using or create new Health Savings Accounts (HSA). one, and Fidelity has the best HSA.

Now this would be cool if it passes. That is presuming the rulez would be same as current to wit: Money “contributed” to HSA is pre-tax. Deferred like an IRA and not taxable unless you use it for something other than approved medical stuff.

My big problem is they cannot seem to report stuff correctly Getting a 1099 saying you “have income” when you paid every dime to medical providers. Then you have to prove it. Pile of excrement.

Have you ever heard of this: - Medicare Medical Savings Account

Hope I am doing this link correctly

Also there may be other taxing unintended consequences - several thing would have to be changed by Congress under Medicare and under the IRS.

The way it is now, there are (2) HSA withdrawal rules which apply differently to those age 65 or older (irrespective of Medicare enrollment)than to most individuals under the age of 65.

  • First, although health insurance premiums generally are not considered an HSA-qualified medical expense, this restriction does not apply to individuals aged 65 years and
    older; these individuals may treat any health insurance premiums (including Medicare Parts A, B, and D and Medicare Advantage premiums) as qualified medical expenses, EXCEPT for premiums for Medicare supplemental (Medi-gap) policies.

  • Second, although withdrawals not used to pay for qualified medical expenses must be included in an individual’s gross income and generally are subject to a 20% penalty tax, the penalty tax does not apply if made after an individual reaches the age of 65.

Congressional Reserarch 02/11/2020 - Health Savings Accounts (HSAs) and Medicare

The reason that Medigap (Medicare Supplemental) premiums aren’t included in this HSA payment rule is simple - Medigap coverage is really NOT health insurance premiums - it is gap insurance.

This is so, and Medical Advantage Plans vary greatly among the states and among the various services offered by Advantage plans. That’s why have supplemental plans.

Medicare Advantage plans must, by law, cover everything that Medicare covers, albeit in a different manner.

Not disputing your post, jimtoo - but in this regards - for those over 65, using their remaining HSA to pay Medicare insurance premiums - the Medigap premium can’t be paid out of the remaining HSA. That’s as much of an IRS rule as it is a Medicare rule.

HSAs began after I left the workforce, so I am not up to speed on them.

It would be nice if those of us old enough to have not had the benefit of building an HSA up could choose to use non-Roth IRAs funds (without being taxed on their withdrawal) for qualified HSA expenses. Likewise, I’d like to be able to use those non-Roth funds for qualified charitable donations even before reaching the age for required distributions.

Now how would Uncle Sam, Medicare and Social Security (tax on benefits or IRMAA) get their fair share of those distributions? They have already been given tax deferred once - plus if paid out of pocket, can always help to add up that medical expense deduction (over 7.5% - I think we are still at that rate - I have lost count)

My understanding of HSAs is that it (like traditional 401ks and IRAs) is funded with pretax dollars. With an HSA, spending the funds on qualified medical expenses is tax free; withdraw funds or spend on a non-qualified e penses is taxed. Likewise, once you are at the age that you must take distributions from your non-Roth 401k or IRA each year, you can direct those required distributions (or some portion thereof) to qualified charities, and it is not taxed, but still counts as a required distribution. In either of these cases, Uncle Sam doesn’t get any less tax dollars than if one had and was using an HSA, or was sending all their required distributions to qualified charities.

QCDs cannot be done from 401ks or other employer sponsored plans, only IRAs.

I only read the story, not the bill itself, but it seems like they’re taking away more than they’re giving.

The bill does come with a tradeoff: It would remove the ability to use HSA withdrawals to pay for Medicare premiums — something that’s currently allowed. It also would eliminate penalty-free withdrawals for nonmedical expenses in the 65-and-older crowd as now permitted.

Say you have a 65 year old retiree with an HSA that’s been funded and has a nice balance. Let’s also presume they have selected traditional Medicare and have a medigap G policy. Let’s look at what they can spend HSA money on. Certainly their Medicare premiums ($170/mo), but you basically don’t pay anything else substantial that would be qualified HSA spending, right? If your HSA has $30K in it, there’s going to be a lot of HSA money left over. And if they take away the ability to pay Medicare premiums, well, what the heck will you spend the money on?

I can see if you had no HSA when you reached 65, and you signed up for an “advantage” plan, where they’re going to be finding creative ways to bill you for something you thought would be covered, then the ability to wash funds through an HSA would be of benefit. But if you’ve already got an HSA funded, I don’t see that this law is beneficial, and in fact negatively impacts a lot of people.

Am I in the weeds?

You can pay Long Term Care premiums with an HSA. I can wipe out my HSA in about a decade that way

Ah, I didn’t think of that. Probably because after many hours of noodling on it, I finally concluded that I wasn’t going to purchase LTC insurance. But I know it’s the right move for many, just not me. But good point for a legit destination for HSA funds.

Yes, you can pay your Medicare Part B premiums with money left in any HSA, you can pay your Part D plan premiums and any co-pays - basically the only thing you cannot pay out of it is the premiums for the Medigap policy - cause that’s not really health insurance.