Health Savings Accounts (HSA) for retired folks. Isn’t that a novel idea? But it’s being considered in Congress—The Health Savings for Seniors Act, H.R. 3796.
As it stands right now, the only people eligible for an HSA are those aged 65 years and younger who have a high-deductible health insurance plan meaning you have to pay $1,400 out-of-pocket for an individual or $2,800 for a family before the insurance plan pays anything. You get to deduct your contributions to an HSA up to an annual maximum. The money grows tax-free. Then, as long as you use the money for qualified healthcare expenses, you don’t pay taxes on the money you withdraw from the account. It’s truly tax-free.
Under current law, seniors with Medicare can use their existing HSA funds to pay for health care costs, but cannot make new contributions to an HSA or start a new HSA if they don’t already have one. H.R. 3796 would change that and make HSAs available to all seniors. Like those currently eligible for HSAs, seniors would be able to make tax-deductible contributions and tax-free withdrawals to pay for qualified medical expenses, which would certainly help with paying for the cost of healthcare during retirement.
While that all sounds good, there are two major drawbacks to the bi-partisan bill.
- R. 3796 would exclude Medicare premiums as a qualified medical expense. Currently, Medicare premiums are an allowable expense for seniors with HSA accounts.
- It would also repeal the exception that currently allows seniors to avoid the penalty for using HSA money on nonqualified medical expenses. Under the proposed legislation, seniors would pay a penalty if they use HSA money for things other than qualified medical costs.
This is the second time the bill has been introduced. In 2019, it never reached the House floor for a vote. If you’d like the idea of having Health Savings Accounts for people on Medicare, call your congressperson and let them know.