Using Medicare and Health Savings Accounts Together

Understanding What You Can and Cannot Do

It is possible to use a health savings account (HSA) for out-of-pocket Medicare expenses. However, you must be eligible for an HSAand must plan ahead of applying for Medicare in order to do this.

Family looking at Medicare health savings account information

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Out-of-Pocket Spending With Medicare

Medicare is not free. There are monthly premiums, deductibles, copays, and coinsurance. Some items, drugs, or services may not be covered at all.

Medicare costs add up quickly. An analysis by the Kaiser Family Foundation noted that the average Medicare beneficiary spent $5,460 out of pocket for health care in 2016.

The out-of-pocket expenses may include:

  • Medicare Part A (inpatient/hospital coverage): As long as you or your spouse has paid more than 40 quarters (10 years) in Medicare-taxed employment, you get coverage premium-free. However, using that coverage will cost you. For each hospital stay up to 60 days long, you will pay $1,600 in 2023, a $44 increase from the 2022 rate of $1,556.
  • Medicare Part B (outpatient/medical coverage): Everyone pays Part B premiums. Unless you qualify for a Medicare Savings Plan (MSP), the least you would pay based on your income bracket is $164.90 per month in 2023. With the exception of certain preventive screening tests, you will also pay 20% for any services.
  • Medicare Part C (Medicare Advantage plans): Some people will enroll in Medicare Advantage instead of Original Medicare (Part A and Part B). Even if you have a premium-free Medicare Advantage plan, you are still required to pay Part B premiums.
  • Medicare Part D (prescription drug plans): Part D plans are run by private insurers and therefore have variable deductibles, premiums, and copays. Some Medicare Advantage plans incorporate Part D coverage into their plans.
  • Medicare Supplement Plans (Medigap): People who stick with Original Medicare may elect to sign up for a Supplement Plan to help reduce costs. Premiums for those plans vary depending on the plan you use and where you live.

Who Is Eligible for an HSA

HSAs are one way to put aside money for any medical expenses you may have now or in the future. This includes future Medicare out-of-pocket expenses.

Not everyone is eligible for an HSA. First and foremost, you must be enrolled in a qualifying high-deductible health plan. Like any health plan, coverage does not begin until you spend a certain amount of money out of pocket (the deductible amount).

Because these plans require you to pay more up front than the average plan, they are seen as a financial burden, and an HSA is allowable as a means to provide tax relief.

Even if you have a high-deductible health plan, you cannot sign up for an HSA if you have access to another health plan. This excludes separate dental, vision, and long-term care insurance, however, since these benefits are not covered by many high-deductible plans.

In terms of other health coverage, you cannot have a flexible spending account (FSA) or health reimbursement arrangement (HRA). You also cannot be enrolled in Medicare at the time you open a plan, although you can continue to use one, as you will read below.

Finally, you cannot be a dependent individual on someone else’s tax return.

How Health Savings Accounts Work

Similar to an IRA or 401K, funds can be deposited into an HSA without being taxed, but you can only put so much money into the account every year. In 2022, you can contribute up to $3,650 as an individual or $7,300 as a family. In 2023, the allowed contributions increased to $3,850 and $7,750 respectively.

If you enter those funds into the health savings account yourself, you can then apply for a tax deduction that year. If your employer enters those funds from your paycheck, that part of your income is not taxed from the start and a tax deduction is not necessary.

Money in an HSA accrues via investment earnings and interest, but is not taxed. When money is taken out of the account and used for qualifying medical expenses, it is still not taxed.

If money is taken out of the account and used for non-medical reasons, however, you will face an income tax on the amount spent, plus an additional 20% tax.

Medicare's Six-Month Look Back

When and how long you can contribute to an HSA depends on your age.

Many people enroll in Medicare when they turn 65. In this case, you can contribute to an HSA up to one month before you turn 65. Any contributions made in your birth month or later would incur a tax penalty.

However, many people continue working beyond 65 and choose to stay on their employer's health plan instead. In this case, you can contribute to an HSA while employed but know that Medicare will look back six months from the date you sign up. Any HSA contributions made in that six month period, going as far back as your 65th birth month, will incur a tax penalty.

Example: Your 65th birth month was March 2022. You continued working and contributed to an HSA through July 2022. You then signed up for Medicare. Using the Medicare look back period, you would be on the hook for five months of tax penalties for March, April, May, June, and July.

Using an HSA for Medicare Expenses

Not being able to contribute to an HSA does not mean you cannot use a pre-existing account to pay off your Medicare expenses.

Currently, you can use a health savings account to pay for a number of Medicare expenses. Qualifying expenses include monthly premiums for Part A, Part B, Medicare Advantage, and Part D. Coinsurance, copayments, and deductibles for Parts A through D can also be paid for this way.

Non-Medicare expenses that qualify include premiums for long-term care insurance and over-the-counter medications (but only if you get a written prescription for them).

Keep in mind that monthly premiums for Medicare Supplement Plans do not qualify under HSA rules.

How to Maximize Your HSA for Medicare

Depending on your circumstances, it may be in your best interest to build up an HSA to use once you transition to Medicare. By setting aside tax-free earnings now and minimizing future income taxes, you could potentially save thousands of dollars when you retire and are more likely to be on a fixed income.

To do this, you will want to fund your HSA as long as possible before signing up for Medicare. For this, you need to understand the Medicare calendar.

You become eligible for Medicare when you turn 65 years old (enrollment starts three months before and ends three months beyond your birth month). If you are receiving Social Security or Railroad Retirement Benefits at the time, you will automatically be enrolled in Medicare Parts A and B.

Likewise, someone who is on Social Security Disability Insurance (SSDI) will automatically be enrolled in Medicare after 24 months (two years). Everyone else has to apply for Medicare on their own.

Although Medicare eligibility begins at age 65, the current retirement age for Social Security is 67. Many people defer retirement until age 70 to maximize their Social Security earnings with delayed retirement credits.

If you work past age 65 and you are still eligible for employer-sponsored health care, you may want to postpone signing up for Medicare and keep contributing to your HSA.

You can delay Medicare enrollment using the Special Enrollment Period if your employer hires at least 20 full-time employees. In that case, you have eight months to sign up for Medicare from the time you leave your job or lose your employer-sponsored coverage, whichever comes first. Otherwise, you will face Medicare late penalties.


Health savings accounts can be an effective way to invest in the future. They decrease your overall tax burden and allow you to invest and grow your savings. It can be especially important to have these funds available once you retire and are more likely to have a fixed income.

It is important to note, however, that you can use an HSA to pay for qualifying Medicare expenses, but you cannot contribute funds to an HSA while you are on Medicare.

11 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Medicare Interactive. Health Savings Accounts (HSAs) and Medicare.

  2. Medicare costs at a glance.

  3. Cubanski J, Koma W, Damico A, Neuman T. How much do Medicare beneficiaries spend out of pocket on health care? Kaiser Family Foundation. Published November 4, 2019.

  4. Centers for Medicare & Medicaid Services. 2022 Medicare Parts A & B premiums and deductibles/2022 Medicare Part D income-related monthly adjustment amounts. Published November 12, 2021.

  5. Centers for Medicare & Medicaid Services. 2023 Medicare Parts A & B Premiums and Deductibles 2023 Medicare Part D Income-Related Monthly Adjustment Amounts.

  6. Your guide to Medicare preventive services.

  7. Lavetti K, Simon K. Strategic formulary design in Medicare Part D plans. Am Econ J Econ Policy. 2018;10(3):154-192. doi:10.1257/pol.20160248

  8. Internal Revenue Service. 26 CFR 601.602: Tax forms and instructions.

  9. Internal Revenue Service. 26 CFR 601.602: tax forms and instructions.

  10. Long KC. Medicare’s tricky rules on HSAs after age 65. Journal of Accountancy. July 2021.

  11. AARP. What are delayed retirement credits and how do they work? Updated December 22, 2021.

By Tanya Feke, MD
Tanya Feke, MD, is a board-certified family physician, patient advocate and best-selling author of "Medicare Essentials: A Physician Insider Explains the Fine Print."