Dear Rusty: My understanding is that once I’m on Medicare the Health Savings Account cannot be used. I have prescriptions that cost more with the Medicare insurance than paying cash, so why can’t I use the account to pay for these types of prescriptions and for DME with prescriptions? — Wanting to Know
Dear Wanting: The Health Savings Account (HSA) is an excellent vehicle to save money tax-free to use for paying medical expenses not covered by other types of health care insurance, but the rules surrounding HSAs are often confusing.
To be eligible for an HSA, your main health care coverage must be, or have been, a high-deductible plan, which exposes you to significant health care expenses you must pay “out of pocket.” While you are working, the HSA provides a savings account that you, and your employer, can contribute pre-tax dollars to, up to certain annual limits ($3,500 if single and $7,000 for a family in 2019).
The money contributed reduces your taxable income and thus your tax burden, and money withdrawn from your HSA account to pay medical expenses is not considered taxable income. Certainly a win-win situation, but there are some restrictions that you need to be aware of:
• You and your employer must stop making HSA contributions six months prior to your date of application for Medicare Part A (hospitalization coverage).
• Enrollment in Part A is automatic if you are 65 when you apply for Social Security because you cannot receive Social Security benefits without taking Part A if you are 65.
• Any HSA contributions made after the cut-off may be subject to tax penalties and they will not be considered pre-tax contributions (this applies to contributions from both you and your employer). But although you can no longer contribute to your HSA six months before applying for Part A, you can still use the money that has accumulated in your HSA to pay medical expenses for you and your spouse after you have enrolled in Medicare.
• A medicine or drug is a qualified medical expense for HSA purposes only if the medicine or drug requires a prescription or is available without a prescription (an over-the-counter medicine or drug) and you get a prescription for it or is insulin.
If you have prescriptions or expenses for durable medical equipment (DME), the cost associated with the purchase or rental of DME, which is prescribed by a medical practitioner to alleviate or treat a specific medical condition, is a qualified HSA expense. If it costs less to pay cash, you can use the accumulated funds in your HSA account to pay those expenses, rather than using Medicare or a Medicare Advantage plan. And as an extra bonus, you can even get reimbursed for your Medicare Part B (and D) premiums using funds which accumulated in your HSA account while you were working and contributing to it.