Can You Use an HSA to Pay for Medicare Premiums?

Health savings accounts (HSAs) are a valuable and highly tax-advantaged tool for covering medical expenses. When you transition to Medicare, which most Americans become eligible for at age 65, you can continue using your HSA to cover qualifying health-related costs including most Medicare premiums and expenses. There are some limitations and rules to be aware of, however. For example, you can’t use HSA funds to pay Medigap premiums. And, because you must stop contributing to your HSA when you turn 65, you can only use funds already in the account to pay Medicare premiums.

Consider working with a financial advisor to create a personalized retirement plan that takes into account your financial situation and goals. 

Understanding HSAs and Medicare

An HSA is a tax-advantaged account that allows individuals with high-deductible health plans (HDHPs) to save or use pre-tax money for medical expenses. Contributions to an HSA are tax-deductible, the funds grow tax-free and withdrawals for qualified medical expenses are also tax-free. HSA contributions are also free of FICA taxes, a benefit not offered by other tax-advantaged savings plans such as IRAs and 401(k)s.

You can spend HSA funds tax-free on a wide range of qualified medical expenses. Once you enroll in Medicare, you can also use your HSA to pay Medicare premiums. However, just as there are restrictions on the medical expenses you can pay with an HSA, there are restrictions on how you can use your HSA to pay Medicare premiums.

Medicare is a federal health insurance program for people aged 65 and older, as well as some younger individuals with disabilities. Medicare is divided into parts: Part A covers hospital services, Part B covers outpatient care and Part D covers prescription drugs. Most people don’t have to pay for Part A coverage, but it’s common for people to have to pay for Part B and Part D coverage. For example, in 2024 the minimum premium for Part B is $174.70.

How Your HSA Can Reimburse You for Medicare Premiums

You can use your HSA to reimburse yourself for Medicare premiums, but going on Medicare does bring some limits to the way you can use your HSA. Once you are enrolled in Medicare, you can no longer contribute to your HSA. This rule applies even if you are only enrolled in Part A, which typically happens automatically at age 65.

It’s important to stop making contributions as soon as you enroll to avoid penalties. If you continue contributing to your HSA after enrolling in Medicare, you could face a 6% excise tax on those excess contributions.

While you can’t keep contributing to your HSA, you can still withdraw funds from your HSA to pay for qualified medical expenses as long as there is money in the account. That includes paying Medicare premiums.

You can arrange for Medicare to draw the premiums directly from your HSA. If instead you paid for Medicare premiums or other qualified medical expenses out-of-pocket, you can withdraw money from your HSA at a later date to reimburse yourself, as long as you kept the receipts. This provides some flexibility in managing your health care expenses during retirement.

Qualified Medicare Expenses

Not all Medicare expenses are eligible for tax-free HSA withdrawals. Here’s a breakdown of which parts of Medicare qualify:

• Part A: Hospital Coverage. While most people don’t pay premiums for Part A hospital coverage, those who do can use their HSA to cover those premiums. If you have to pay for Part A due to insufficient work history, these premiums are considered a qualified medical expense for HSA purposes.

• Part B: Doctor and Outpatient Coverage. Medicare Part B covers doctor visits, outpatient services, and preventive care. You can use your HSA to pay for Part B premiums, and these withdrawals will be tax-free as long as the funds are used for this specific purpose.

• Part D: Prescription Coverage. Medicare Part D helps cover the cost of prescription medications. HSA funds can be used to pay for Part D premiums, allowing you to continue benefiting from your HSA even after enrolling in Medicare.

Frequently Asked Questions About HSAs and Medicare

Can I Use My HSA to Pay for Medicare Premiums?

Yes, you can use your HSA to pay for Medicare Part B, Part D and Medicare Advantage (Part C) premiums. However, you cannot use HSA funds to pay for Medigap supplemental insurance premiums.

Can I Contribute to My HSA After Enrolling in Medicare?

No, once you are enrolled in any part of Medicare, you are no longer eligible to make contributions to your HSA. Continuing to make contributions after enrollment can result in tax penalties.

Can I Use My HSA to Pay for Other Medical Expenses After Enrolling in Medicare?

Yes, you can use your HSA to pay for other qualified medical expenses, such as co-pays, deductibles, prescription medications and dental or vision care, even after enrolling in Medicare.

Can I Reimburse Myself for Medicare Premiums Paid in the Past?

Yes, if you paid Medicare premiums out of pocket, you can later reimburse yourself from your HSA as long as you kept records of your payments. There is no time limit for when you must withdraw the funds for reimbursement.

Bottom Line

While you cannot continue making contributions to your HSA after enrolling in Medicare, you can still use your HSA funds to cover certain qualified medical expenses, including Medicare Part B, Part D and some Part A premiums. By leveraging your HSA for these expenses, you can reduce your out-of-pocket healthcare costs and maximize the tax benefits of your account well into retirement.

Tips for Retirement Planning

• A financial advisor can work with you to create a personalized retirement plan that covers costs of living, healthcare and other expenses. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• If you want to know how much your retirement savings could grow over time, SmartAsset’s retirement calculator could help you get an estimate.

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