Q: We have always told employees they can contribute to their HSA up until the month before they enroll in Medicare. I recently had an employee asking about something they read online that indicated: a) once an individual enrolls in Medicare, it can be effective retroactively up to six months; and b) therefore, HSA contributions should be discontinued six months before they turn 65. I have never heard anything about a six-month retroactive period of Medicare coverage and don’t know what to tell this employee.
A: Your question is a perfect example of how confusing the issues can be regarding eligibility to contribute to an HSA after the age of 65. The short answer is that the concern regarding a six-month period of retroactive coverage applies only to select individuals who enroll in Medicare during a Special Enrollment Period (SEP), which by definition takes place after the employee turns 65. More on this below.
In general, individuals who are otherwise eligible to contribute to an HSA (i.e., they are enrolled in an HDHP) can do so up until the month before they enroll in Medicare. That can happen when they turn 65, but employees who have coverage through their employer often delay Medicare enrollment until they actually retire.
When employees turn 65, they have an opportunity to enroll in Medicare during an “Initial Enrollment Period,” or IEP. Each person’s IEP starts three months before the month in which they turn 65 and ends three months after the month in which they turn 65.
Medicare takes effect the first day of the month in which an employee turns 65 if they enrolled before that date. However, if they wait to enroll during the month they turn 65 or the last three months of their IEP, the start date for their coverage could be delayed up to three months. In this situation, they would be allowed to continue contributing to an HSA during the delay.
As to your specific question, the retroactivity of Medicare coverage is only an issue when someone enrolls during a SEP – usually when they retire and lose employer-sponsored medical coverage. In this situation, they may need to stop contributing to their HSA six months before retiring. If they wait to enroll during Medicare’s annual open enrollment period, coverage is not retroactive.
That said, Medicare should never take effect before the first day of the month an individual turns 65. Therefore, anyone who is considered HSA-eligible should be able to contribute to their HSA at least through the month before turning 65, possibly longer.