Wine, leather boots, jeans, flannel sheets, cast iron pans, decision making… Can you guess what these items have in common? If you said "they all get better with age", you are correct!
As we get older, we gain more knowledge through education and our own personal experiences. Our ability to make better decisions about things life has in store for us increases. For this post, we wanted to pass on some of our knowledge to educate you about two very relevant topics: your healthcare and your money.
What better way to do this than to talk about Medicare (as everyone will have to have it in one form or another), and relate it to health savings accounts, our area of expertise. So without further ado, here’s a basic crash course on Medicare and HSAs.
The Basics of Medicare
Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net
Part A: Hospital coverage
It helps pay for inpatient hospital care, skilled nursing care, hospice care and other services. Most people don't have to pay anything for Medicare Part A. If you have had a job for at least 10 years with a company that offers Medicare-covered employment, then you don’t have to pay for Part A. If you don't meet this requirement, you may have to pay a premium for Part A. Part A is also paid for by a portion of Social Security tax.
Part B: Medical Coverage
It helps pay for doctor’s fees, outpatient hospital visits, and other medical services and supplies that are not covered by Part A. Part B is paid for by the monthly premiums of people enrolled, and by general funds from the U.S. Treasury. Most people pay monthly premiums for Medicare Part B.
Part C: Medicare Advantage
Medicare Advantage plans allow you to choose to receive all of your health care services through a provider organization. These plans may help lower your costs of receiving medical services, or you may get extra benefits for an additional monthly fee. You must have both Parts A and B to enroll in Part C.
Part D: Prescription Drug Coverage
Medicare Part D is a prescription plan that reduces the cost of formulary drugs. Part D is optional, and there is a premium paid for by those who are enrolled in this plan. Unlike Part A in which you are automatically enrolled and must opt out if you do not want it, with Part D you have to opt in. There may be a penalty for not enrolling in a prescription plan.
HSA Options When Delaying Medicare
If you have a job you love and choose to continue to work past the age of 65, you will delay your starting date to receive Social Security benefits. Automatic enrollment in Medicare may not occur for you. You will need to contact Medicare for instructions in enrolling.
Delaying enrollment in Medicare is a personal decision and requires time and research to see if you will benefit from such a delay. Medicare enrollment affects your eligibility to continue to fund your HSA. One requirement to fund an HSA is you cannot be covered by any other health plan that is not an HSA plan. Medicare is not a qualified plan. If you continue to work and stay on your employer-sponsored HSA plan and enroll in Medicare as well, you would not be able to fund your HSA for the months you are covered by Medicare.
If you do not enroll in any part of Medicare, including Part A, you are able to take advantage of continuing to fund your HSA. Nothing changes. You can contribute up to the maximum allowed by the IRS increasing your nest egg. You also still have the option of using the funds in your HSA for qualified medical expenses for yourself, spouse and any dependents or saving the money for use later.
HSA Options When Enrolling in Medicare
Once you enroll in Medicare, contributions to your HSA need to be prorated based on the month you enroll in Medicare. If you enroll in August, then you can fund the amount for 7 months of having qualified coverage. You do not have to contribute the allowed amount by the month you enroll in Medicare. You have the same deadline as any HSA account holder. The deadline to fund your HSA for 2013 is April 15, 2014 or the date your file your tax return, whichever comes first.
You can pay for Medicare premiums from your HSA when you turn 65. This does not include supplemental premiums. If your Medicare premiums are deducted from your social security allowance, you may be able to reimburse yourself from your HSA.
These premiums for your spouse can also be paid from your HSA as long as the account holder is 65 or older. If your spouse is enrolled in Medicare, but you as the account holder are not 65 yet, your spouse’s premiums cannot be paid from your HSA.
If you choose to close your account when you turn 65, the balance in your account becomes taxable income to you, but there are no penalties. But, if you choose to keep your account opened and use the funds for HSA-qualified medical expenses, the monies remain tax-free…and this is a good thing!
Relax, You’ve Earned It
So now that you’ve got all the information you need, go put on your Tony Lamas and a favorite pair of Levi’s, cook some eggs and bacon in your cast iron pan and sit back and enjoy a glass of Ste. Chappelle Chardonnay. When the moon comes out and the stars are shining, you can climb into your flannel sheets and have sweet dreams knowing that you have made the most educated and mature decision about your healthcare dollars.
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