If you’re interested in learning about a triple-tax benefit plan, then look no further than health savings accounts, also referred to as HSAs for short.
HSAs established by the Internal Revenue Service provide three distinct tax advantages for Medicare-eligible individuals:
— Your contributions reduce your taxable income.
— Any investment growth within the account is tax free.
— Withdrawals used to pay for qualified medical expenses are tax free.
There is an important catch to state upfront, however. HSAs really provide tax advantages for Medicare-eligible individuals if you began contributing to an HSA before you became eligible for Medicare. That’s because once you become eligible for Medicare, you won’t be able to fund an HSA.
[READ: Medicare IRMAA: What You Should Know]
What Is an HSA (Health Savings Account)?
An HSA is a savings account that allows contributors with high-deductible health insurance care plans to make tax-free deposits to save and pay for qualified medical expenses. Because Medicare plans aren’t considered high-deductible health insurance plans (even if the deductible is, in your opinion, high), enrollees aren’t allowed to contribute to an HSA.
An HSA is a tax-advantaged financial tool designed to help people grow their earnings and make withdrawals tax-free for certain medical expenses not covered by health plans.
Individuals can seamlessly carry their HSA when transitioning between jobs and health care insurance plans. Some employers may incentivize HSA utilization by making initial or yearly cash contributions to the HSA account.
Unlike savings in a flexible savings account, which expires within a year, money in your HSA accumulates without expiring at the end of the year. Individuals typically have the option to keep them in cash or choose from a range of investments that remain in the account year after year and can build up over time. HSAs can earn interest that is not subject to taxes.
[Read: What to Do When Your Doctor Leaves Your Health Plan.]
How Does an HSA Work?
If you’re working, the money comes out of your paycheck before taxes. This reduces your gross income and, therefore, your taxable income.
On the other hand, if you don’t work, you need to find a health care plan that has HSA eligibility. Medicare and Medicare Advantage plans are not HSA eligible. That is, if you already have an HSA, you have to stop contributing to it once you enroll in any part of Medicare. That said, if you already have an HSA, you can use the money that’s already in there to pay for your Medicare premiums. Similarly, if you’re unemployed or retired and you cannot find an eligible plan, you cannot contribute to an HSA.
Whether you contribute to your HSA from your paycheck or if you pay out of pocket, both options are tax deductible.
After the money is in your account, you usually can access it via a debit card or checks connected directly to your HSA. You can withdraw funds from your HSA to pay for qualified medical expenses without being taxed.
“Unspent HSA funds roll over on a yearly basis that helps you create tax-free savings to pay for medical care when you need it,” says Allyson Heumann, a professor of practice in the strategy, leadership and analytics minor at Tulane University in New Orleans. “However, any funds from an HSA that are used to pay for non-qualified medical expenses are taxable.”
[Read: The Highest Medical Costs to Expect in Retirement.]
Can You Use an HSA to Pay for Medicare Expenses?
Yes, you can use your HSA funds to pay for qualified Medicare expenses tax-free and penalty-free once you are enrolled in Medicare. Eligible expenses include Medicare parts A, B and D premiums, deductibles, copays and coinsurance. You can also use HSA money to pay for Medicare Advantage plans.
However, you can’t use HSA funds to pay for Medicare Supplement (Medigap) premiums.
“You may use your HSA funds, free of tax and penalty, to pay for Medicare parts A, B and D premiums,” says Jesse Slome, director of the American Association for Long-Term Care Insurance of Westlake Village, California. “Even if your Medicare premiums are being automatically withheld from your Social Security benefits, you have the option to make tax-free withdrawals from an HSA to reimburse yourself.”
This is, of course, assuming that you had an HSA long before you enrolled in Medicare — and contributed to it for years. Then, you can use that money to pay for Medicare premiums. Obviously, if you enroll in Medicare and then decide you would like an HSA, you’ll be out of luck. You won’t be able to start a health savings account.
One thing to keep in mind, however. If your spouse has an HSA, he or she can keep contributing to it. That you’re on Medicare doesn’t matter. Your spouse can also use their funds for your medical needs, and if you do have an HSA, you can use your funds for your spouse.
[READ: What to Do if AI Denies Your Medicare Claim or Prior Authorization]
Who Is Eligible for an HSA?
For the most part, if you are on Medicare, you won’t eligible to start an HSA, since you won’t be able to fund it. But if you’re not on Medicare yet and are considering starting one, to contribute to an you must meet the following requirements.
— You are covered under a high-deductible health plan (HDHP), which has a deductible of $1,700 or more for singles and $3,400 or more for families. Self-employed health care consumers can contribute to an HSA.
— Your HSA-eligible health plan’s out-of-pocket maximum, including the annual deductible, cannot exceed $8,500 for self-only coverage and $17,000 for family coverage.
— You have no other health coverage except what is permitted. For instance, if you and your spouse have family coverage with an HDHP plan, you can’t generally (see next bullet point) have any other health coverage. However, you can still be eligible if your spouse has non-HDHP coverage, provided you aren’t covered by that plan.
— There is a new change for 2026, thanks to new legislation passed in 2025. People who have bronze and catastrophe health insurance plans through the Marketplace can have HSAs. As the IRS now states on its website, “As of Jan. 1, 2026, bronze and catastrophic plans available through an Exchange are considered HSA-compatible, regardless of whether the plans satisfy the general definition of an HDHP. This expands the ability of people enrolled in these plans to contribute to HSAs, which they generally have not been able to do in the past.” (If you’re on Medicare, this really won’t apply to you, unless, for instance, you are on Medicare, and your spouse isn’t yet and has their own health insurance plan.)
— You can’t be declared a dependent on a family member’s tax returns.
— You aren’t enrolled in Medicare.
— New for 2026: If you have an arrangement with a doctor, where you pay their office directly, without insurance, known as a direct primary care service arrangement, or a DPC, if you are eligible in every other way, you can now contribute to an HSA. You can also use your HSA funds tax-free to pay periodic DPC fees.
As noted, once you enroll in Medicare, you can no longer make contributions to an HSA. For individuals with qualified employer health insurance who may qualify to delay Medicare enrollment past age 65, it’s especially important to understand how getting Medicare coverage impacts your HSA. For instance, if you continue making contributions after you enroll in Medicare, unaware that you shouldn’t be making contributions, you could wind up with a 6% excise tax on those excess contributions and any interest accrued by those contributions.
[READ: Medicare Coverage: Can You Opt Out if You’re Still Employed?]
What Happens to Your HSA Once You Enroll in Medicare?
After you enroll in Medicare Part A and Part B, or Medicare Advantage, you’re not allowed to make any more contributions to an HSA. If you plan to keep working and want to continue building up your HSA, you might consider delaying Medicare enrollment. If you’re signed up for Social Security benefits, enrolling in Medicare Part A is mandatory.
But there’s good news. The money in your HSA won’t go to waste. You can still withdraw funds tax-free to pay for qualified medical expenses even after you enroll in Medicare. You can even use your HSA to pay for some Medicare expenses including your Medicare Part B, Part D and Medicare Advantage plan premiums, deductibles, copays and coinsurance.
Late enrollees to Medicare and HSAs
Late enrollees in Medicare face a unique situation.
When enrolling in Medicare after turning 65, coverage is retroactive for the six months preceding enrollment but not before the individual’s 65th birthday (so if you enroll when you are 65 and four months, coverage is retroactive for four months). This becomes a concern for those over 65 contributing to an HSA who delay Medicare or Social Security enrollment, triggering automatic Medicare Part A enrollment.
The problem? It’s that hefty 6% excise tax.
Let’s say that you hit 65 years of age and delay Medicare for awhile. You’re still working and are perfectly happy with your employer’s health insurance. If you keep making HSA contributions and a few years later, you get on Medicare, if you’ve been continuing to make your contributions, you may get hit with tax penalties, since your coverage for Medicare Part A is retroactive for six months before you enroll. In other words, several months before you plan to enroll in Medicare, ideally, you should stop contributing to your HSA.
Individuals caught in this scenario may need to issue a revised tax return or face potential tax implications. The six-month lookback period serves the purpose of backdating Medicare coverage to avoid leaving individuals without health insurance while they transition from employer health coverage. Current regulations grant automatic six months of retroactive health coverage to those applying for Medicare Part A or Part B after turning 65, rendering them ineligible to make or receive HSA contributions for the months that are covered. This may lead to refunding contributions or facing penalties for over-contributing.
HSAs and Medicare: What’s Allowed Before and After Medicare
What Can You Use an HSA to Pay for Tax Free?
Before you use your HSA, make sure the medical expense is covered.
Qualified medical expenses include:
— Doctor’s visits and copayments
— Dental treatments (such as routine cleanings, fillings and orthodontics)
— Vision care (including glasses, contact lenses and eye surgery)
— Laboratory and diagnostic fees and services
— Medical equipment (such as hearing aids, crutches and wheelchairs)
HSA funds are generally not permitted for use in paying private health insurance premiums, with some exceptions such as a Medicare Advantage plan or COBRA.
How Much Money Can You Contribute to an HSA?
Annual HSA contribution limits for 2026 are significantly increasing, which has been a trend for the last several years, according to the IRS.
The annual limit on HSA contributions for self-only coverage will be $4,400 for 2026. For family coverage, the HSA contribution limit is $8,750 for 2026.
“The new changes are a major increase, but with rising inflation that has led to higher out-of-pocket costs for employees,” Heumann says.
When should you stop contributing to an HSA?
Once you reach age 65, you may want to stop contributing since you are able to enroll in Medicare. You can continue to withdraw your HSA funds for non-medical expenses without penalty and pay only income taxes. HSA rules only allow pre-tax contributions to your HSA if you are enrolled in a high-deductible health plan (HDHP) and have no other form of insurance — and Medicare counts as a form of insurance.
If you’re not nearing Medicare age, there are other reasons you might not be able to contribute to your HSA, like when you switch health care coverage and are no longer covered by an HDHP. In that case, once you discontinue HDHP coverage or get coverage under another health plan that disqualifies you from an HSA, you can no longer make contributions to your HSA. Since you own the HSA, you can continue to use it for future medical expenses.
Bottom Line
HSAs are tax-advantaged savings accounts designed for allocating pre-tax funds specifically to cover qualified medical expenses. Utilizing tax-free dollars within an HSA to cover deductibles, copayments, coinsurance and certain other medical costs could potentially reduce your out-of-pocket health care expenditures.
When you enroll in Medicare, contributing to an HSA is no longer an option. However, you retain the option to use existing HSA funds to pay for qualified medical expenses, which may include certain Medicare costs.
It’s critical to research your options and talk to financial advisors to make an informed decision around the best time to enroll in Medicare and how that may affect how you cover health care costs.
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HSA and Medicare: Using HSA To Pay for Medicare Premiums originally appeared on usnews.com
