If you don’t know, an HSA is a Health Savings Account that lets you set aside, invest, and grow your money tax free as long as you spend that money on medical expenses. You only pay taxes on your distributions if you use the money for non-medical expenses. If you use your HSA funds to pay for medical expenses, you don’t need to pay taxes on your distributions at all. Click Here to learn more about how an HSA compares to an HRA or FSA (Flexible Spending Account).
HSA’s are only available to those who have high deductible health insurance plans. If your employer offers a high deductible plan, but does not offer an HSA, you can always open an HSA here with Betterment. For 2022, the IRS has increased the contribution limit by $50 to $3650 per year for self and they increased the family contribution limit by $100 to $7300 per year. If you are 55 years or older, you can contribute an extra $1000 per year. This contribution limit includes both the employee and employer contributions.
The Laws Don’t Make Sense
When you get Medicare, you lose your ability to fund your HSA. Those who retire are get Medicare are usually senior citizens who have way more medical bills than they had in their 30’s. You lose the ability to contribute to one of the most beneficial investment accounts when you need it most. It does not make sense but this is the world we live in.
Lately there has been a renewed interest in allowing those on Medicare to contribute to an HSA. Health Savings Accounts have rapidly grown in popularity over the past decade. There is an increasing number of the population that is expected to reach age 65 with an HSA account. At the end of 2021, there were an estimated 32 million HSA accounts in existence, an 8% increase over 2020. More companies are switching to high deductible health insurance plans and more American’s are working longer into their 60’s. According to 2021 research from the Kaiser Family Foundation, 28% of American’s have an HSA. In fact, most HSA holders who reach age 65 are surprised to discover that they can no longer contribute to their HSA. The Health Savings for Seniors Act, introduced last month (April 2022), aims to tackle the situation.
Currently you may use your HSA account to pay for Medicare premiums. If The Health Savings for Seniors Act is passed, you will no longer have the ability to use your HSA to pay for Medicare. The bill would also add penalties on withdrawals used for non-medical expenses if you are 65 and older.
Will It Pass?
This is the second time such a bill is being introduced. In 2019, this bill failed to pass or gain momentum. Medicare has a product that is similar to the HSA, called the MSA or Medical Savings Account. To get an MSA, you need get the high deductible Medicare Advantage Plan. One of the major downsides to the MSA is that you cannot contribute savings to the account as the individual account holder. The company that offers the MSA makes the contributions which can vary from year to year.
To summarize, if this bill is passed it would eliminate two of the benefits that currently exist with HSA’s. Penalties and restrictions on HSA usage will take effect for those on Medicare. I don’t think it will pass because HSA’s require high deductible health plans. Medicare is not considered a high deductible plan. Download my Contribution Limit Tracker to track your HSA, IRA, and 401k contributions. Subscribe below to learn more about personal finance, retirement, real estate, and investing.
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