People approaching age 65 may need some help navigating the intricacies of Medicare. One set of complications surround mandatory enrollment in Medicare Part A. Let us guide you through some of the rules.
You wouldn’t think a government benefit would be mandatory. Shouldn’t you be able to decline something like insurance coverage if you don’t want it?
That’s not how it works with Medicare Part A, the portion of Medicare that covers hospitalizations, skilled nursing facility care, home health care following hospitalization, and hospice.
Here’s the rule: If you are 65 or older and receiving Social Security, you must be enrolled in Medicare Part A.
If you applied for Social Security before age 65, you will automatically be enrolled in Medicare Parts A and B when you turn 65. You can decline Part B if you are covered by an employer group plan and do not wish to pay for Part B. You may not decline Part A.
If you are not receiving Social Security at 65, you will not automatically be enrolled in Medicare when you turn 65. In this case it will be up to you to decide when you want to start Medicare and you will have to proactively enroll through SSA. You will also want to arrange for supplemental coverage, including drug coverage, through a private insurance company in order to have complete insurance.
If you apply for Social Security benefits sometime after turning 65, you will automatically be enrolled in Medicare Part A at that time. The application will be backdated six months or back to age 65 if shorter.
If you have paid into Social Security the required 10 years to qualify for benefits, you would also have contributed to Medicare the required 10 years to qualify for premium-free Part A. And the two go hand-in-hand. If you take Social Security you must take Part A. (It doesn’t go the other way, however; you can take Part A without being required to take Social Security.)
The section of POMS that deals with Part A entitlement and termination is HI 008. In POMS, HI may refer to Health Insurance or Hospital Insurance (Part A). Where you see the words “HI entitlement” it is referring to Part A entitlement, the result of paying into Medicare for at least 10 years. The very short section that states that Part A is mandatory if receiving Social Security is HI 00801.002 Waiver of HI Entitlement by Monthly Beneficiary.
The exact wording is, “Individuals entitled to monthly benefits which confer eligibility for HI may not waive HI entitlement. The only way to avoid HI entitlement is through withdrawal of the monthly benefit application.” The “monthly benefits” referred to here are Social Security retirement (including spousal) or survivor benefits (referred to in POMS as “RSI”).
Withdrawing the application
As we know, it is possible to withdraw your application for Social Security benefits if it is done within 12 months of application. This is a good option for clients who realize how much more they could receive in benefits by filing at a later date. A client who withdraws their application for Social Security will be required to repay all benefits received. Once this is done they are free to refile at a later date.
If the client was 65 or older when they filed for Social Security and were automatically enrolled in Part A, they may withdraw the Social Security application and keep the Part A. Or they may withdraw applications for both Social Security and Part A. If they do, they will need to repay all benefits received, including the Social Security and any payments made by Medicare under Part A. If the client was not hospitalized during this period or otherwise had no claim under Part A, this is not a concern, but if they did receive any benefits under Part A, these would need to be repaid along with the Social Security benefits.
The rule mandating acceptance of Part A if receiving Social Security is reiterated in HI 00801.034 Withdrawal Considerations.
“An individual who filed an application for both monthly benefits and HI may:
- withdraw the claim for monthly benefits without jeopardizing HI entitlement; or
- withdraw the claim for both monthly benefits and HI.
The individual may not elect to withdraw only the HI claim.”
Who wouldn’t want Part A if it’s free?
The only time this rather arcane and nonsensical rule comes into play is when a client is contributing to a Health Savings Account. Then there’s another arcane and nonsensical rule that says you cannot contribute to an HSA if you are enrolled in any part of Medicare. IRS Publication 969 states:
“To be an eligible individual and qualify for an HSA contribution, you must meet the following requirements.
- You are covered under a high deductible health plan (HDHP), described later, on the first day of the month.
- You have no other health coverage except what is permitted under “Other health coverage,” later.
- You aren’t enrolled in Medicare.
- You can’t be claimed as a dependent on someone else’s 2023 tax return.”
It further explains: “Beginning with the first month you are enrolled in Medicare, your contribution limit is zero. This rule applies to periods of retroactive Medicare coverage. So, if you delayed applying for Medicare and later your enrollment is backdated, any contributions to your HSA made during the period of retroactive coverage are considered excess.”
Further, it is not possible to do a one-time IRA-to-HSA rollover if you are enrolled in Medicare at the time of the rollover or for 12 months thereafter. This means your IRA-to-HSA rollovers must be planned very carefully so the 12-month period following the rollover does not overlap with any period of Medicare enrollment, including the six-month backdating.
So there you have it: all the rules and references that prohibit HSA contributions if receiving Social Security and enrolled in Part A.
When people ask why a person can’t contribute to an HSA if they are enrolled in Medicare, my only answer is that it’s a matter of two separate rules colliding. I don’t think anyone really intended for people receiving Social Security to be prohibited from contributing to an HSA, but that’s the rule—two rules, actually. One mandates enrollment in Part A if receiving Social Security, the other prohibits HSA contributions if enrolled in Medicare.
There’s been talk in Washington of fixing this, but it is obviously not a very high priority. My best guess is that it will eventually get inserted into some other bill or resolution. In the meantime, workarounds include:
- Don’t file for Social Security (obviously not an option after age 70, as the cash benefits from the Social Security would far exceed the tax benefits from the HSA).
- Have the non-Medicare spouse make the full family contribution.
- Ask the employer for health benefits in a different form, one not involving an HSA.
References
- GN 00206.020 Hospital Insurance (HI) and Withdrawal (WD)
- GN 00206.001 Withdrawal (WD) of a Title II Benefit Application
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