HSA Funding Post-Medicare Enrollment
In the leadup negotiations over the One Big Beautiful Bill, or OBBB, proposals were floated to modify the rules governing health savings accounts (HSAs) to allow taxpayers to continue funding these accounts even after enrolling in Medicare. Under current law, taxpayers must stop funding their HSAs once they have enrolled in Medicare at age 65—even if they continue to work. While some changes to the HSA rules did become law, the provision that would have continued HSA eligibility even after enrolling in Medicare was excluded from the final text of the OBBB.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about whether taxpayers should be permitted to continue funding HSAs after enrolling in Medicare at age 65.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Bloink: This change was included in some of the draft OBBB legislation yet never made it into the final text of the bill--and absolutely should have made it into the law. The fact is, an individual will continue to face unexpected medical expenses even after they've enrolled in Medicare. These are exactly the types of expenses that an HSA is designed to help fund, and we absolutely should be encouraging taxpayers of all ages to continue proactively saving to cover costs that even Medicare does not fully cover.
Byrnes: The tax benefits of HSAs are tied directly to the high deductibles involved in high-deductible health plans. HSAs are meant to help offset the cost of health expenses that are incurred before the taxpayer satisfies their deductible. Once a taxpayer enrolls in Medicare, their premium rates are generally tied to their income levels--and a much higher percentage of their health costs are covered under the generous Medicare system.
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Bloink: Eliminating the tax-preferred ability to fund unanticipated health expenses simply because an individual has enrolled in Medicare is a completely arbitrary rule that's actually quite unfair--especially given that health care needs are almost always going to increase as an individual ages. Medicare does not cover all types of healthcare expenses—including, importantly, expenses related to long-term care in a nursing facility. Medicare beneficiaries should have every tax-preferred option at their disposal when it comes to saving for future medical costs.
Byrnes: We aren't taking away a person's accumulated HSA funds just because they've enrolled in Medicare. Seniors continue to have tax-free access to their HSA dollars even after enrolling in Medicare. In fact, their ability to access those HSA funds on a tax-free basis is significantly easier after reaching age 65—so we can't pretend that Medicare beneficiaries aren't benefitting from the current rules.
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Bloink: Excluding this HSA expansion from the OBBB was entirely related to budgetary constraints, rather than as a result of sound policy decision making. This is one unfortunate consequence of the manner in which the GOP elected to push this legislation into law—valuable and important issues were ignored or excluded merely to reduce the cost of passing yet another set of significant tax breaks for the wealthiest taxpayers at the expense of ordinary Americans.
Byrnes: Allowing taxpayers aged 65 and up to continue reducing their taxable income with pre-tax HSA contributions even without being enrolled in an HDHP simply does not make sense or further the goals of the HSA program--which are entirely to offset the costs of the high deductibles associated with lower-cost HDHPs. Yes, the cost of this change was one reason why it didn't make it into the final OBBB—but we have to remember that the law did provide important and valuable benefits to older Americans and much-needed tax relief to Americans of all ages.