Category: Employer

Tax Penalty Alert: Mixing Medicare and HSAs

Tax Penalty Alert: Mixing Medicare and HSAs

Medicare and Health Savings Accounts just don’t mix.

Like oil and water. Like toothpaste and orange juice. Like shopping with grandkids and fixed budgets.

 

This is very important to know. When you start Medicare, either Part A or Part B, you have to stop contributions to your HSA account. Otherwise, you could be on the hook for some tax penalties. According to IRS publication 969, the penalty is 6% of your contribution and its interest until you remove the funds from your HSA.

 

So if you want to continue contributing to your HSA (legally, at least), you will have to delay getting on Medicare. But here’s the catch: Very few people can delay Medicare without receiving—you guessed it—penalties (there seems to be a lot of these nowadays). In fact, the only people who can forgo Medicare benefits without consequences are those who have adequate coverage with their employer through active employment. I’m not talking retiree insurance. I am talking Monday through Friday, on-the-floor or in-the-office work. It’s the only way.

 

And if you started receiving Social Security early and were signed up for Medicare automatically, I’m sorry to say you are stuck. You cannot contribute to your HSA, and it will be very difficult to get around it. This is because you are not allowed to opt out of Part A. Although you can drop Part B, being enrolled in Medicare Part A will still prevent you from contributing to your HSA.

 

However, it is important to note that you can still use the money in your HSA. There is no penalty for that. As a matter of fact, I would strongly encourage you to use your money. You’ve spent a lot of time building up that robust HSA; you might as well take advantage of it! You can use the funds for

  • Your Part B Premium
  • Your Drug Plan Premium
  • Your Advantage Plan Premium
  • Doctor’s Appointments
  • Copays

And this is just the beginning. There are many other qualified medical expenses you can use it for.

 

So don’t get too upset. You’re Health Savings Account is not obsolete. It’s just not going to grow much anymore. But that is just the way it is with a lot of things in retirement. Think of your nest egg. Your 401k. IRAs. It is just that time in your life when you stop working to save and start putting those hard-earned savings to work for you! When you look at it that way, it doesn’t seem too bad.

 

Have more questions about Medicare and your employer insurance?  Click here to receive your free copy of our handout:  The top 4 questions Medicare-aged employees ask about their employer health insurance.

 

If you still have questions — give our office a call at 937-492-8800.

 

Photo:  http://lifeandmyfinances.com/wp-content/uploads/2014/06/20140630-hsa.jpg

Turning 65 and Work For a Small Employer? Sign Up For Medicare Part B!

Turning 65 and Work For a Small Employer? Sign Up For Medicare Part B!

The general rule of thumb is if you have employer insurance through active employment, you can delay Part B of Medicare without penalty.

 

But that certainly doesn’t mean you should! There are cases, of course, when your employer plan is the better value, and it works out for you to opt out of part B. However, in other situations, it may be very costly.

 

For example, consider the woman who came into our office earlier this year with an $8000 bill for her outpatient surgery. She opted out of Part B, but she had insurance through active employment. Shouldn’t her employer plan cover it?

 

Well, not always. You see, her insurance was provided through a company that employed less than 20 people. This made Medicare the primary payer of her insurance. And when she didn’t have Medicare? Well…it wasn’t good.

 

The costly mistake had to do with how coordination of benefits works between employer insurance and Medicare. Let’s take an employer health insurance plan that covers 80/20 as an example (insurance pays 80%, you pay 20%)

 

When an employer plan covers 20 or more employees, the employer plan is the primary payer of your claims. Therefore, your employer insurance pays 80% of the bill and Medicare (if you have it) pays the remaining 20%. In this case, it is not necessary to have Part B; you can opt out. You’ll have to pay the remaining 20%, but it saves you the $134.00 a month Part B premium.

 

But if your employer plan covers less than 20 employees, Medicare pays first. The whole thing is flipped. So what if you get the previously mentioned expensive surgery and don’t have Medicare? It will not just carry over to your employer plan. They won’t pay the 80% that was supposed to be covered by Medicare. Instead, you will be lucky to get them to pay the 20%, leaving you on the hook…80% or more on the hook, which might just be $8000 in uncovered surgery procedures.

 

This is why it is so important to ensure that you are signing up for Medicare at the right time. Just because your neighbor can opt out of part B doesn’t mean you can. They might work for a Honda or a Copeland, a company with thousands of employees. You might work for a small business of 15 people.

 

So check with your boss or human resources department. Ask and make sure. It could save you from an unexpected, expensive, and potentially crippling bill.

 

Confused about Medicare and not sure what to do next? Download our free E-book here, and let us walk you through it!  Still have questions?  Call our office at 937-492-8800 to schedule a free, no obligation appointment!