Debate: Should Workers on Medicare Be Allowed to Fund HSAs?

Bloink: The trade-off to this proposal is that individuals would no longer be entitled to use their hard-earned HSA funds to cover Medicare premiums, something that is currently allowed. The proposals would also eliminate taxpayers’ ability to access HSA funds penalty-free after age 65. These significant trade-offs are issues that must be carefully examined before we blindly accept the idea that allowing individuals to continue contributing to HSAs post-Medicare is desirable.

Byrnes: We should be doing everything possible to encourage taxpayers to continue saving to cover their own post-retirement health care expenses. If this proposal became law, it would encourage Americans to take control of their own health savings to avoid unpleasant financial surprises when they learn that Medicare doesn’t cover everything — which is a situation that many older Americans find themselves facing.

Bloink: Medicare premiums are often an individual’s largest health expense during retirement. Many individuals avoid tapping their HSAs during their working years, specifically so that they’ll have the tax-preferred funds to pay for Medicare premiums during retirement.

Taxpayers who are fortunate enough to not incur significant expenses outside of their Medicare premiums could be left to pay penalties on funds withdrawn for non-medical uses. The trade-offs are not worth the added benefit of the extra HSA contribution years.

Byrnes: The benefits of funding HSAs are substantial, especially for older Americans who continue to work even while drawing Social Security benefits and participating in Medicare. These are the Americans who are likely to be lower- or middle-income taxpayers who may have begun saving for retirement expenses late — and who therefore might need the extra opportunity to continue funding HSAs on a pretax basis to cover health expenses later in life.

Bloink: I’m not against removing the restriction on post-65 contributions to HSAs even when taxpayers are enrolled in Medicare. However, the cost is simply too high if we eliminate the ability of these taxpayers to use their HSAs to fund Medicare premiums during retirement. That’s a trade-off that would harm all older Americans, even those who don’t continue working past 65.

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