The Six-Month Retro Rule and Its Effect on HSA Contributions
by William G. (Bill) Stuart | Originally posted on LinkedIn by Health Savings Academy
Medicare Part A has a retroactive feature that may reduce your final Health Savings Account contributions.
It's unfortunate that Health Savings Accounts (Treasury) and Medicare (Health and Human Services) are governed by different areas of the executive branch of the federal government. You're disqualified from funding a Health Savings Account for any month that you're enrolled in Medicare. That's bad enough, as this rule prohibits otherwise-eligible working seniors from funding or accepting an employer contribution into their Health Savings Account.
But it gets worse: Many Medicare enrollees discover that part of that coverage is retroactive up to six months. In other words, they lose their Health Savings Account eligibility for up to six months (and, as you'll learn below, often longer) even though they were HSA-eligible as they lived in those months.
This concept of retroactive coverage is confusing. If you're familiar with its effect on Health Savings Accounts, you've probably heard the rule of thumb to "stop contributing to your Health Savings Account six months before you enroll in Part A."
Directionally, that advice is correct. It raises the proper red flag. But it's not precise. Because sometimes the retroactive period is less than six months. Sometimes it's longer. And you can still contribute during the early months that you're disqualified, but not for those months.
Confused? You should be. Let's explore this important issue.
Medicare Part A Retroactive Coverage
How many insurance policies do you buy that automatically cover you retroactively? Probably none - except Medicare Part A, which reimburses inpatient, home-health, and hospice care. That's right, when you apply for Part A, you may receive free retroactive coverage. Or not.
The retroactive period depends on the month that you apply for Part A (rather than the month that Part A is effective) and your birth date. The retroactive period of coverage extends back up to six months from the month that you submit your Part A application, not from the month that you're covered by Part A.
Example 1: Poliane is retiring in December 2024 when she turns age 68. She'll apply for Medicare Part and Part B in September 2024 for a Dec. 1 effective date. When her Medicare coverage becomes effective Dec. 1, 2024, her Part A coverage will be backdated six months from the month that she submits her Medicare application (September). Thus, she won't be eligible to fund her Health Savings Account for any months after February (as her retroactive period will stretch from September back to March 1).
There's another variable. Whether the retroactive coverage applies depends on your age. The retroactive period extends back up to six months from the month that you submit your application, but in no case does it extend back prior to age 65.