New Bill Would Relax HSA Eligibility for Individuals with Medicare

Recently, a bipartisan bill was introduced in the House of Representatives (House) that would change the eligibility requirements to make contributions to a Health Savings Account (HSA).

Referred to as the Health Savings for Seniors Act, the House bill would let those individuals who are enrolled in a high deductible health plan (HDHP) and Medicare contribute to an HSA. Under current rules, anyone enrolled in Medicare coverage cannot make contributions to an HSA even if they also have coverage under an HDHP. With more and more people working beyond age 65, the bill aims to preserve HSA contribution eligibility for those who have an HDHP and Medicare Part A and/or B.

The House bill does come with some tradeoffs. The bill would eliminate the ability to use HSA funds tax-free for Medicare premium expenses. Currently, all Medicare premiums other than those for Medicare Supplement plans can be paid tax-free from an HSA.

The bill would also impose a 20% penalty when HSA funds are used for non-medical expenses by someone age 65 or older. That penalty is currently waived for people aged 65 or older.

This isn’t the first time this bill has been introduced by Congress, and numerous other bills have been introduced in the past that would make changes to various HSA rules and regulations. It’s unclear if this bill will earn enough votes in both chambers of Congress to become law, but it does have at least some bipartisan support. The bill is being co-sponsored by Ami Bera (D-CA) and Jason Smith (R-MO).

HSAs continue to be a valuable healthcare resource for individuals in the United States. It’s estimated that 32-33 million individuals have an HSA. HSAs let people set aside money tax-free for the future use of healthcare expenses. Unlike Flexible Spending Accounts (FSAs) or Health Reimbursement Arrangements (HRAs), HSAs let people invest their funds into stocks, bonds, exchange traded funds (ETFs), mutual funds, and other publicly traded vehicles with earnings accumulating tax-free. As long as the money is withdrawn and used to pay for out-of-pocket medical expenses, the funds are never taxed.