Did you know that when you sign up for Social Security benefits after turning age 65 that you will be automatically enrolled in Medicare Part A and given up to 6 months of retroactive coverage?  Unfortunately, there isn’t much you can do since enrollment in Medicare Part A is mandatory when you sign up for Social Security.

That can come as quite a shock to someone still working and contributing to their Health Savings Account and means they might need to recalculate their contribution limit for the year (and possibly the prior year also).  To understand how and why this can happen, it’s important to understand more about how Social Security and Medicare work.

Social Security

The age at which you can receive your full Social Security benefits is currently 66 and 4 months for those that turn 65 in 2021.  The earliest you can start receiving Social Security benefits is age 62, but if you take Social Security “early,” your benefit is reduced.  For example, you would only receive 75% of your full benefit if you start taking Social Security at age 62.

The age for receiving full (100%) Social Security benefits is gradually increasing to 67.  If you delay taking Social Security beyond the age that you qualify for full benefits, your benefits increase for every year that you wait, until you turn 70.  For example, waiting to age 70 will increase your Social Security benefits by 25%.  You actually don’t have to take Social Security but delaying beyond age 70 won’t increase your benefits more than 25%.

Medicare

Once you start taking Social Security benefits, you will be automatically enrolled in Medicare Part A.  This enrollment is mandatory and you cannot opt out.  Some have tried and even sued the government, but a case that went all the way to the Supreme Court reaffirmed that you cannot opt out.

The earliest you can enroll in Medicare is age 65, unless you are disabled (but only after a two-year waiting period) or have end-stage renal disease.  If you take Social Security before age 65, you will not be automatically enrolled in Medicare Part A until you turn 65.

If you take Social Security at age 65 you will be automatically enrolled in Medicare Part A at 65.

If you wait until after you turn 65 to take Social Security, you can voluntarily enroll in Medicare Part A at any time starting at age 65.  But if you don’t enroll in Medicare Part A and you wait to take Social Security after age 65, this is when the Medicare Part A “retroactive coverage” rule comes into play.

Individuals are not required to enroll in Medicare Part A when they turn 65 and there is no penalty for late enrollment in Part A, unlike with Parts B and D.  Medicare Part A is free for most individuals so there is no other sense of urgency in enrolling.

Once an individual starts taking Social Security benefits, they will be automatically enrolled in Medicare Part A when they turn 65.  These individuals also cannot decline enrollment in Part A.  So, any individual that takes Social Security benefits before 65 will automatically be enrolled in Medicare Part A when they turn 65.  There is no 6-month retroactive enrollment for these people.

If you take Social Security more than 6 months after you turn 65, you will be automatically enrolled in Medicare Part A retroactive to 6 months prior.  Medicare’s retroactive coverage rule is “up to” 6 months but it is mandatory and automatic.  For example, if you take Social Security less than 6 months after you turn 65, you will be automatically enrolled in Medicare Part A retroactive to your original Medicare Part A eligibility date (usually the month you turn 65 but will be the month prior if your birthday is on the first day of the month). 

I’ve put together a chart below to help illustrate this.  Assume that the individual turns 65 in January 2021.

Note also that individuals can delay taking Social Security benefits and voluntarily enroll in Medicare Part A at any time but they would be retroactively enrolled in Medicare Part A by up to 6 months.

Health Savings Accounts

Enrollment in any part of Medicare is disqualifying coverage for Health Savings Accounts.  In addition to the link between Social Security and Medicare Part A are rules that require the following individuals to enroll in Medicare as their primary coverage when they turn 65:

• Employees of small businesses with less than 20 employees
• Self-employed individuals
• Individuals who are unemployed and/or retired

Since these individuals must enroll in Medicare as their primary coverage when they turn 65, none of them can remain eligible to contribute to a Health Savings Account past age 65, regardless of when they take Social Security.

The only individuals that can delay enrollment in Medicare so they can continue to contribute to a Health Savings Account after age 65 are employees of businesses with 20 or more employees.  But these individuals would also have to delay taking Social Security so they don’t end up enrolled on Medicare Part A.

Medicare Parts B and D are voluntary so these individuals can delay enrollment in these parts of Medicare, but they have must have employer group coverage (Part B) and the coverage must be “creditable” (Part D).  This is important because both Parts B and D charge higher premiums for individuals that enroll “late” and didn’t meet the requirements.

Who knew that Medicare and Social Security could have such an impact on your Health Savings Account!

Fixing the Problem

Moving forward, there are several ways to eliminate this problem for individuals working for a larger company (20+ employees) past age 65 who want to continue to contribute to a Health Savings Account.

1. The 6-month retroactive Medicare enrollment is a Medicare rule.  The Centers for Medicare and Medicaid Services (CMS) administers the Medicare program, so they would need to change the rule.
2. Congress could eliminate the 6-month retroactive enrollment rule by changing the Medicare law.
3. Congress could change the HSA statute to remove enrollment in Medicare as a disqualifier for HSA eligibility (with or without Medicare’s 6-month retroactive coverage rule).

The Internal Revenue Service cannot change the Medicare rules since they do not have jurisdiction over Medicare.  The IRS also cannot change the HSA rules unless Congress changes the HSA law.

Feel free to contact your elected representatives in Congress about fixing this problem before it affects you.