Enrolled in Medicare? You Can't Back out to Fund Your HSA.*

By William G. Stuart | Originally posted on LinkedIn for Health Savings Academy

* Only a very small percentage of Medicare Part A enrollees are eligible to disenroll to continue funding a Health Savings Account. Chances are excellent that you're not among this handful.

No Health Savings Account topic is more confusing than the intersection of these financial accounts and Medicare coverage. This observation was reinforced last week when an industry colleague asked me to weigh in on a compliance question. One of his company's account owners had talked to a Social Security representative and was convinced that he could disenroll from Medicare Part A (which covers inpatient, skilled-nursing, home-health, and hospice services) and become eligible to fund his Health Savings Account.

Unfortunately, it's almost impossible to disenroll from Part A once you're enrolled. This door opens only if you pay a premium for Part A coverage. And unless you're one in a hundred Part A enrollees, you pay no premium.

Medicare and Health Savings Accounts

The original Health Savings Account legislation (coincidentally, a bill that also created a Medicare prescription-drug benefit) is clear that anyone enrolled in any Part of Medicare (referred to as Section XVIII of the Social Security Act, where Medicare legislation is housed) is disqualified from funding a Health Savings Account:

Internal Revenue Code Section 223 (b):

(7)Medicare eligible individuals

The limitation under this subsection for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter.

Thus, Medicare coverage is disqualifying. Note the qualifier: coverage. You're not disqualified from opening and funding a Health Savings Account for any month that you're Medicare-eligible, which for most Americans is the first day of the month of their 65th birthday. But you are disqualified from making or receiving contributions when you're enrolled on/covered by Medicare.

Social Security and Medicare

If you're age 65 or older and collecting Social Security benefits, you're automatically enrolled in Medicare Part A and Part B. You can waive Part B coverage (which carries a premium of at least $174.70 in 2024) by calling your local Social Security office.

If you are (or your spouse who covers you on his company's plan is) still working for a company with 20 or more employees and covered on an employer-sponsored plan, you will probably disenroll from Part B to avoid the monthly premium. It's not difficult to disenroll. And if you sign up promptly for Part B when your coverage on the group plan ends, you face no penalty or premium surcharge for delaying your enrollment.

But you can't decline or disenroll from Medicare Part A if you're collecting Social Security benefits. In the 1990s, during the Clinton Administration, the Medicare Program Operations Manual System (as the name implies, the blueprint for Medicare administration), or POMS, was revised to include this provision that Social Security enrollees faced mandatory Part A coverage.

Thinking of challenging this provision in court? You could. But three plaintiffs, including former House of Representatives majority leader Dick Armey (R-TX) tried that approach more than a decade ago. They sued the Secretary of Health and Human Services because they wanted to collect Social Security benefits but didn't want to be enrolled in Medicare, which interfered with their private coverage. They lost their case in district court. They appealed to the US Circuit Court of Appeals for the District of Columbia and lost again, this time in a 2-1 decision authored by then-Judge Brett Kavanaugh.

Thinking of demanding that the next president change the rule? Administrative law (created by the executive branch, rather than Congress through the legislative process) can be altered by a future president. The process is often drawn out. Given a court decision affirming the link between Social Security and Medicare enrollment in POMS, a change may require congressional action.