Information Letter 2016-0003 (Mar. 25, 2016); Information Letter 2016-0014 (Mar. 25, 2016)
The IRS has released two information letters dealing with health savings account (HSA) contributions in the year an individual becomes entitled to Medicare. Addressing the maximum permissible HSA contribution for an individual who enrolls in Medicare at age 65, Information Letter 2016-0014 explains that the contribution limit for that year is prorated based on the number of months that the individual is not enrolled in Medicare. (An individual entitled to Medicare (i.e., eligible and enrolled in Medicare) is not HSA-eligible.) Addressing a more complicated scenario involving the HSA contribution limit when spouses reach age 65 in the same year, Information Letter 2016-0003 explains that each spouse’s contribution limit will be based on the number of months the spouse is not enrolled in Medicare and the spouse’s high-deductible health plan (HDHP) coverage. If the spouses have family coverage for the months before one enrolls in Medicare, their combined contributions for those months will be limited to a prorated portion of the contribution limit for individuals with family HDHP coverage. If the other spouse then immediately switches to self-only HDHP coverage, that spouse can make additional HSA contributions up to a prorated portion of the contribution limit for individuals with self-only HDHP coverage for the additional months before enrolling in Medicare. Each spouse would also be allowed to contribute a portion of the additional $1,000 catch-up contribution permitted for HSA-eligible individuals who are age 55 or older based on their respective months of eligibility.
EBIA Comment: These letters address the effect on HSA contributions of commencing Medicare in the year an individual attains age 65. But these proration principles also apply to individuals who do not apply for Social Security, continue working past age 65, and delay their enrollment in age-based Medicare because they are covered by a group health plan based on their current employment. Those individuals may apply for age-based Medicare at any time after their initial enrollment period so long as they continue working and remain covered by their employer’s group health plan. When their employment or group health coverage ends, whichever occurs first, they will also have an eight-month special enrollment period to sign up for Medicare Part A. Application of the proration rules in that situation is more complicated, however, because the first month of Medicare entitlement may be retroactive. Premium-free Medicare Part A coverage for individuals who delay enrollment begins six months prior to the month in which an individual applies for benefits (but no earlier than the first month of eligibility). In that situation, the last month of eligibility for purposes of the proration calculation will be seven months before the individual’s Medicare application. For more information, see EBIA’s Consumer-Driven Health Care manual at Section IX.C (“An Individual Who Is Entitled to Medicare Is Not HSA-Eligible”). See also EBIA’s Group Health Plan Mandates manual at Section XXIV.C.1 (“Entitlement to Medicare Part A”).
Contributing Editors: EBIA Staff.