Married & Medicare Eligible? Check the Spousal HSA Eligibility Rules

by Prof. Robert Bloink and Prof. William H. Byrnes

Many taxpayers are currently enrolling in Medicare during this year’s open enrollment season.  Taxpayers often look forward to their ability to enroll in Medicare in order to reduce health coverage costs.  Still, today it’s also common for clients to elect to keep working and wonder how their enrollment in Medicare will impact their right to continue funding a valuable health savings account (HSA).  Medicare doesn’t offer a qualifying health plan option to allow HSA eligibility. That said, situations aren’t always so simple.  For clients in complicated situations, the answer is often similarly complex—and all too often, clients receive conflicting advice, especially when both spouses have yet to enroll in Medicare.  Understanding the rules is critical, both when it comes to avoiding penalties and maximizing the overall value of the client’s HSAs moving forward into retirement.

Medicare and HSAs: The General Rules

To contribute to HSAs, an individual must be enrolled in a high deductible health plan (HDHP).  HSA contributions are never allowed if the individual is enrolled in any other type of health plan.  That means individuals who continue to work past their age-65 enrollment date cannot contribute to their HSA after they are enrolled in Medicare.  They’re also prohibited from accepting employer contributions to HSAs.

Improper HAS contributions are subject to a six percent penalty.  Taxpayers have until their tax filing deadline (plus extensions) to withdraw any excess contributions without penalty.

Medicare backdates coverage when an individual enrolls in Medicare Part A.  A six-month look-back period applies, meaning that clients should stop making contributions to their HSAs six months before they enroll in Medicare or begin receiving Social Security benefits to avoid penalties.  If the client makes contributions within that six-month window, however, they can withdraw the contributions before the end of the year of contribution without penalty.

It’s also important to remember that once the client claims Social Security, they are automatically enrolled in Medicare Part A if they have reached full retirement age.  Individuals who begin claiming benefits before reaching age 65 are also automatically enrolled upon reaching age 65.  That means they can no longer make HSA contributions even though they did not actively apply for Medicare coverage.

Individuals who enroll in Medicare later in the year may be entitled to make HSA contributions for months when they are not enrolled in Medicare coverage.  In other words, a pro-rated contribution for the year may be allowed (but clients should remember the six-month retroactive window when calculating their HSA contribution limit for the partial year).

Even when a client isn’t eligible to fund an HSA, they can continue to use existing HSA funds.  Those funds continue to be available tax-free so long as they are used to pay for qualifying medical expenses (including traditional Medicare premiums for Parts A, B, C and D, but excluding premiums for supplemental Medicare programs).  Taxpayers can use HSA funds to reimburse themselves for Medicare premiums that are withdrawn directly from their Social Security benefits (but it’s important to keep records to substantiate the HSA withdrawals).

Continuing Spousal Contributions

While the individual who enrolls in Medicare is technically no longer able to fund an HSA, that individual’s enrollment doesn’t impact a spouse’s ability to fund their own HSA.  Individuals who choose to continue working after enrolling in Medicare can elect to maintain their employer-sponsored HDHP for the benefit of their spouse and other dependents who are not eligible for Medicare.

In these cases, the actual employee remains ineligible to fund an HSA.  The spouse, however, can open and fund their own HSA based on their spouse’s employer-sponsored HDHP coverage.  That spouse can fund their account up to the contribution limits for family coverage for the year.

That’s because, by definition, the employee-spouse has elected family HDHP coverage in order to provide coverage for their spouse.  In 2024, the spouse can contribute up to $8,300 to their HSA (increasing to $8,550 in 2025).  If the spouse is age 55 or older, they can also take advantage of a $1,000 catch-up contribution.

Note that while joint HSAs don’t currently exist, the two spouses can use the funds in each other’s HSAs without any limitations.

When an HDHP participant’s spouse is the one who enrolls in Medicare, the participant can continue to fund their HSA.   However, it’s possible that their contribution limit may change from the family to individual coverage limit ($4,300 in 2025 and $4,150 in 2024) if the participant-spouse no longer maintains family coverage.  If the participant-spouse maintains family coverage, they continue to enjoy the family coverage contribution limit even though their spouse cannot contribute after enrolling in Medicare.

Conclusion

Generally speaking, HSAs and Medicare don’t mix.  That said, it’s also important to realize that a spouse’s rights are not dependent on their spouse’s status as a Medicare beneficiary.  Instead, the rules governing HSA eligibility are applied independently to each spouse.