February 11, 2020
Health Savings Accounts (HSAs) and Medicare
Medicare enrollment impacts an otherwise eligible
For 2020, the maximum annual amount an individual with
individual’s ability to establish and contribute to a health
self-only coverage can contribute to his or her HSA is
savings account (HSA). Although Medicare enrollees
$3,550 and the maximum annual amount an individual with
cannot establish HSAs or make or receive contributions to
family coverage can contribute to his or her HSA is $7,100.
their existing accounts, these individuals can withdraw any
For those aged 55 or older, the maximum annual amount an
remaining balances in previously established accounts. This
individual can contribute to his or her HSA is increased by
In Focus provides an overview of HSA rules and highlights
$1,000. Contribution limits are determined based on the
how these rules apply to Medicare enrollees.
months individuals are considered eligible, and individuals
may have lower contribution limits if they were not eligible
Health Savings Accounts
for the entire year.
HSAs are tax-advantaged accounts that individuals can use
to pay for unreimbursed medical expenses (e.g.,
HSA Withdrawals
deductibles, co-payments, coinsurance, and services not
Account holders may make tax-free HSA withdrawals to
covered by insurance). Although eligibility to contribute to
pay qualified medical expenses for themselves, their
an HSA is associated with enrollment in a high-deductible
spouse, or their dependents.
health plan (HDHP), HSAs are trust/custodial accounts and
are not health insurance.
For HSA purposes, qualified medical expenses include the
costs of diagnosis, cure, mitigation, treatment, or prevention
HSA Eligibility
of disease and the costs for treatments affecting any part of
Individuals are eligible to establish and contribute to an
the body; the amounts paid for transportation to receive
HSA if they meet three requirements in a given tax year:
medical care; and qualified long-term care services. Except
they have coverage under an HSA-qualified HDHP, they do
for limited circumstances, health insurance premiums and
not have disqualifying coverage, and they cannot be
over-the-counter medicines are not considered qualifying
claimed as a dependent on another person’s tax return.
medical expenses.
To be HSA qualified, an HDHP must (1) have a deductible
Withdrawals not used to pay for qualified medical expenses
above a minimum level (in 2020, $1,400 for self-only
must be included in an individual’s gross income when
coverage and $2,800 for family coverage); (2) limit out-of-
determining federal income taxes and generally also are
pocket expenditures for covered benefits to no more than a
subject to a 20% penalty tax.
maximum level (in 2020, $6,900 for self-only coverage and
$13,800 for family coverage); and (3) cover only preventive
Individuals who subsequently become ineligible to
care services before the deductible is met.
contribute to their HSAs retain access to their accounts and
may continue to withdraw from their HSAs.
Disqualifying coverage is generally considered any other
health coverage that is not an HSA-qualified HDHP or that
HSA Rules for Married Couples
provides coverage for any benefit also covered under an
Spouses are prevented from having joint HSA accounts
individual’s HSA-qualified HDHP. For example,
(even if the spouses are covered by the same HSA-eligible
individuals with an HSA-qualified HDHP are not eligible to
HDHP). Only one spouse can be listed as the account
establish or contribute to their HSA if they also are covered
holder for a given HSA, even though that spouse’s HSA
under a spouse’s policy that is not an HSA-qualified
may be used to reimburse the medical expenses of either
HDHP.
spouse. Nothing prevents each spouse from establishing his
or her own HSA, assuming each is eligible.
HSA Contributions
If an individual is eligible to contribute to an HSA anytime
If both spouses are HSA-eligible and at least one spouse is
during a given tax year, the total amount that individual
covered by a family coverage HSA-eligible HDHP, then the
may contribute (or may have contributed on his or her
maximum amount the couple can collectively contribute to
behalf—e.g., by an employer) to his or her HSA is capped.
its HSA(s) is associated with the family coverage annual
Generally, the maximum amount an individual may
limit for that year ($7,100 in 2020). The collective
contribute to his or her HSA in a tax year is based on the
maximum amount is to be split evenly between the spouses’
months during the year that he or she was considered HSA
HSAs, unless both agree on a different division. If both
eligible; the type of HDHP coverage the individual had
spouses are aged 55 or older and eligible to make catch-up
during those months (self-only or family); and the
contributions, each spouse must make such a contribution
individual’s age (those aged 55 or older are allowed
to his or her own account; one spouse cannot make catch-up
additional catch-up contributions).
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Health Savings Accounts (HSAs) and Medicare
contributions to his or her own HSA on behalf of the other
contribute to his or her HSA would include any allowable
spouse.
catch-up contributions.
For more information on HSAs, see CRS Report R45277,
If such an otherwise HSA-eligible individual enrolled in
Health Savings Accounts (HSAs), and Internal Revenue
Medicare after turning 65, his or her Medicare enrollment
Service (IRS) Publication 969, Health Savings Accounts
would be retroactively applied by six months (or to the age
and Other Tax-Favored Health Plans.
of 65, whichever is shorter). This retroactive Medicare
enrollment would retroactively disqualify the individual
Medicare
from being HSA eligible during such period, and the
Medicare is a federal health insurance program that pays for
individual would be subject to tax penalties for any HSA
covered health care services for most people aged 65 and
contributions made during the retroactive coverage period.
older and for certain permanently disabled individuals
under the age of 65. Medicare consists of four distinct parts;
HSA Eligibility for Spouses of Medicare Enrollees
Medicare Parts A, B, and D each cover different services,
Because HSA eligibility is determined on the individual
and Part C (Medicare Advantage) provides a private plan
level, an individual’s enrollment in Medicare would not
alternative for Parts A and B. Part D is an optional
affect his or her spouse’s eligibility to establish and
outpatient prescription drug benefit.
contribute funds to his or her spouse’s HSA, even if both
spouses are enrolled in the same non-Medicare plan. For
Although individuals generally enroll in Medicare Part A
example, Spouse 1 and Spouse 2 are enrolled in an HSA-
when they are first entitled to benefits at the age of 65,
eligible HDHP (family coverage) through Spouse 1’s
some individuals choose to delay enrollment, though
employer. Spouse 1 is also enrolled in Medicare. Assuming
delayed Medicare enrollment may have other implications
Spouse 2 is otherwise eligible, Spouse 2 may establish and
(e.g., late enrollment penalty). If an individual signs up for
contribute to his or her own HSA, which may be outside of
Medicare after his or her 65th birthday, that individual’s
Spouse 1’s employment setting. Spouse 1 may not make
enrollment will be retroactively applied by six months (or
contributions to his or her own account on behalf of Spouse
to the age of 65, whichever is shorter). For example, if an
2.
individual signs up for Medicare at the age of 70, his or her
Medicare coverage will be retroactively applied to when the
As with contribution limits generally, the maximum amount
individual was 69 ½ years old.
that Spouse 2 can contribute to his or her own HSA is tied
to the type of coverage Spouse 2 was enrolled in during the
For more information on Medicare, see CRS Report
tax year (in this instance, family coverage); Spouse 2’s age;
R40425, Medicare Primer.
and the months that Spouse 2 was considered eligible.
Spouse 1’s lack of eligibility to contribute to his or her
HSA Eligibility for Medicare Enrollees
HSA would not affect the maximum HSA contribution
Individuals who are enrolled in Medicare are not allowed to
amount available to Spouse 2, other than the fact that the
establish or contribute to their HSA. Medicare enrollees are
couple no longer needs to determine how to split the
prohibited from contributing to an HSA regardless of
maximum contribution amount between the spouses’ HSAs.
whether they also are enrolled in an HSA-eligible HDHP.
For example, a 66-year old individual who is enrolled in an
HSA Withdrawals After Medicare
HSA-eligible HDHP through his or her employer and also
Enrollment
is enrolled in Medicare would not be able to make any
Although individuals enrolled in Medicare cannot
contributions (or have any contributions made on his or her
contribute to their HSAs, they can withdraw from their
behalf—e.g., by an employer) to his or her HSA.
HSAs. As with non-Medicare enrollees, Medicare enrollees
can continue to make tax-free withdrawals from their HSAs
This rule was established in HSA law (26 U.S.C.
for qualified medical expenses even though they have
§223(b)(7)), which states that individuals may not
disqualifying coverage and may no longer be enrolled in an
contribute to their HSA when they are “entitled to benefits”
HSA-eligible HDHP.
under Medicare. The law dates to 2003, when HSAs were
first authorized. The IRS has interpreted the phrase
In addition, two HSA withdrawal rules apply differently to
“entitled to benefits” to mean “eligibility and enrollment” in
those aged 65 or older (irrespective of Medicare
Medicare. This rule is consistent with the general HSA rule
enrollment) than to most individuals under the age of 65.
that the ability to contribute to HSAs is generally limited to
First, although health insurance premiums generally are not
individuals whose only coverage is provided through an
considered an HSA-qualified medical expense, this
HSA-eligible HDHP.
restriction does not apply to individuals aged 65 years and
older; these individuals may treat any health insurance
HSA Eligibility for Individuals with Delayed
premiums (including Medicare Parts A, B, and D and
Medicare Enrollment
Medicare Advantage premiums) as qualified medical
If an individual aged 65 or older delayed Medicare
expenses, except for premiums for Medicare supplemental
enrollment, the individual would still be eligible to establish
(Medi-gap) policies. Second, although withdrawals not used
and contribute to an HSA (assuming he or she is otherwise
to pay for qualified medical expenses must be included in
eligible to do so). Since this individual would be older than
an individual’s gross income and generally are subject to a
55 years of age, the maximum amount the individual could
20% penalty tax, the penalty tax does not apply if made
after an individual reaches the age of 65.
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Health Savings Accounts (HSAs) and Medicare

IF11425
Ryan J. Rosso, Analyst in Health Care Financing


Disclaimer
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Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
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