Mailbag: Group HSA's and Medicare

One of our readers recently emailed us with an interesting problem. Seems that his group insurance at work was upgrading to a High Deductible HSA-compliant plan. The challenge is that a handful of his co-workers, including the boss, are post-65 and on Medicare.

So what, you ask?

So this:

"You are not eligible for an HSA after you have enrolled in Medicare. If you had an HSA before you enrolled in Medicare, you can keep it. However, you cannot continue to make contributions to an HSA after you enroll in Medicare."

That is, if you're on Medicare, then you can't set up a Health Savings Account (HSA), nor can you continue putting money into an existing one. This poses a problem for our reader's group: it seems that the employer was going to "seed" the account to help pre-fund some expenses.

The problem was actually even more specific: the Medicare-covered employees were enrolled only in Part A, not B (physician's expenses) or D (debacle, er...drugs). Would this make a difference?

Now that is a great question. As an aside: I am continually pleased and amazed at the level of discussion that we're able to generate here. Our readers are generally informed and ask intelligent, insightful questions (even those readers with whom we occasionally disagree). Very cool.

After consulting with Bob and Bill, it was determined that whether or not one had enrolled in Parts B and/or D made no difference: those employees just weren't eligible to participate in the HSA plan. The employees could, of course, enroll in the HDHP (high deductible plan), which may or may not be appropriate. Bill also mentioned that at least one CA insurer offers a multi-plan option, where employees in a group plan can choose different types of benefits (ala "cafeteria plans"). Unfortunately, that wasn't an option in this particular case.

In the event, it looks like our reader's employer is going to use a direct reimbursement plan. Although this route lacks some of the advantages of an HSA, it's simple and effective.

We're always glad to help out, and appreciate the opportunity to do so, even when the answer isn't what we'd prefer.

I was disappointed that the Medicare-enrolled employees weren't able to fully participate in the HDHP/HSA arrangement. That seems a shame, and a waste. Some years ago, Medicare proposed adding an HSA-type option. Unfortunately, that never got off the ground. But if you're interested in that sort of thing, the folks at Kaiser did an interesting "white paper" on the idea. It's available here.

I'm ambivalent about whether or not this would really work. Obviously, I'm a big proponent of HSA's, but I have to wonder about the Medicare market for them right now. Down the road, as they (hopefully/presumably) gain market share, and more folks "age into" Medicare, they'll become attractive.