Representatives Ami Bera, M.D. (D-CA) and Jason Smith (R-MO) recently reintroduced H.R. 3796, the Health Savings for Seniors Act, bipartisan legislation that would allow seniors covered under Medicare to continue using or create new Health Savings Accounts (HSA).
Under current law, Medicare beneficiaries are prohibited from continuing to contribute to or opening a new health savings account; they may only draw down from it.
Many Americans who have established HSA accounts think that they can continue funding the HSA past enrollment in Medicare and are often surprised to find out they can’t under current law.
“As a doctor who has cared for our seniors, I know firsthand how stretched our seniors are with their medical bills,” said Rep. Bera, who previously served as Chief Medical Officer for Sacramento County. “Unfortunately, seniors covered under Medicare are currently prohibited from contributing to a Health Savings Account, a critical tool that many individuals routinely use before they are on Medicare. HSAs would particularly help seniors pay for services such as dental and vision care that is currently not covered under Medicare, leading to a healthier and happier life, and a more dignified retirement. I’m proud to work with Rep. Smith to introduce bipartisan legislation to end this unnecessary constraint on our nation’s seniors.”
“HSAs would particularly help seniors pay for services such as dental and vision care that is currently not covered under Medicare, leading to a healthier and happier life, and a more dignified retirement.”
Rep. Ami Bera (D-CA)
An HSA allows individuals to set aside pre-tax money to pay for out-of-pocket medical expenses such as copayments, deductibles, and other qualified expenses. These funds remain in the account and are not “use it or lose it” like other types of flexible savings accounts.
HSAs have long been attractive (if underutilized) for offering one of the best tax breaks in the entire tax code. They are uniquely triple-tax-advantaged, as contributions to the HSA reduce your taxable income; the earnings grow tax-free; and qualified withdrawals (used to pay qualified health care expenses) are tax-free.
For seniors who pay a federal income tax rate of 12%, it equates to saving 12% on every medical cost they pay for with funds from their HSA.
“The federal government should make it easier—not harder—for older Americans to access health care,” said Rep. Smith. “The threat of rising inflation underscores the need to give seniors more flexibility with how and when they can pay for their out-of-pocket health care expenses. Allowing Medicare-enrolled seniors to contribute to Health Savings Accounts is a sensible reform that will not only save money in the long-run but promote better health outcomes. I’m grateful for Rep. Bera’s partnership in helping to bring this bipartisan legislation forward to protect America’s seniors.”
Though it is a bipartisan effort, the bill is far from a slam-dunk in terms of its chances of becoming law. It would of course need to pass the House and Senate and be signed by President Joe Biden. Reps. Bera and Smith originally introduced the bill back in July 2019, and it was never advanced during that congressional session.
The appetite on Capitol Hill for advancing the bill during this year’s session is unclear, despite declared support from organizations including the Association of Mature American Citizens, Better Medicare Alliance, Corporate Health Care Coalition, Employers Council on Flexible Compensation, Healthcare Leadership Council, and National Association of Health Underwriters.
The bill does have a couple of noteworthy downsides for seniors. For one, it would exclude Medicare premiums as a qualified medical expense, meaning seniors with HSAs no longer could use those funds to pay for Medicare premiums. It would also repeal the exception that currently allows seniors to avoid the penalty for using HSA funds on things other than qualified medical expenses. This means seniors who spend HSA funds on non-medical costs would owe a penalty.
According to Devenir’s 2021 Year-End HSA Market Statistics & Trends Executive Summary, health savings accounts grew to $98 billion in assets held in over 32 million accounts, a year-over-year increase of 19% for assets and 8% for HSAs.
Annual contributions to HSAs for 2022 are limited to $3,650 for individuals or $7,300 for family coverage. People age 55 or older can contribute an extra $1,000 per year.
Read the full text of the Health Savings for Seniors Act here.
SEE ALSO:
• 8 in 10 HSA Holders Stopped or Decreased Investing in 2021
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
