To be eligible for an HSA, you must be enrolled in a qualified high-deductible health plan and you cannot be covered by another type of health plan. HSAs are available from private health insurance companies or through your employer if it makes one available to you. In most cases, individuals are eligible for Medicare upon turning 65. Potential Medicare beneficiaries are sent an enrollment kit a few months prior to their eligibility date.
Once you enroll in Medicare, you are no longer permitted to make contributions to your HSA. However, you can still withdraw HSA funds on a tax-free basis to help pay for medical costs not covered by Medicare. These costs can include deductibles and copayments that you normally have to pay out of your own pocket. You can also use your HSA funds to pay the premiums for Medicare Parts B, C or D, which can help make these plans more affordable.
Individuals enrolled in Medicare Part A and Part B often purchase a Medicare supplement policy, also known as Medigap, to cover the Medicare deductibles and copayments. However, individuals with an HSA may choose to use the funds to cover these expenses instead of purchasing a Medigap policy. If you choose this strategy, be aware that if you decide to take out a Medigap policy at a later time, you will need to medically qualify, something that is unnecessary when enrolling during your open-enrollment period upon turning 65.
You are not required to use your HSA funds to pay for additional medical expenses when you are enrolled in Medicare. You may choose to withdraw funds to supplement other sources of retirement income such as Social Security benefits, pension funds or IRAs. However, any withdrawals you make that are not used for covered medical expenses will be considered taxable and will be taxed at ordinary income rates.