Can an individual delay Medicare to preserve HSA eligibility?
First, it’s best for an employer to point an employee directly to Medicare with specific questions to avoid being given incorrect information. However, there is some general information employers should be aware of with regard to HSA-eligibility:
Enrollment in any part of Medicare is considered disqualifying coverage, and therefore makes an individual ineligible to open or contribute to an HSA. In order to preserve HSA eligibility, an individual would have to determine if delaying enrollment in Medicare is an option, which generally depends on the size of the employer offering the group health plan.
If an employer has less than 20 employees, an employee would likely face penalties if he or she delays Medicare Part A or B in order to preserve HSA eligibility. In this situation, the individual generally needs to enroll in Part A and B when first eligible for coverage at age 65. This rule also applies for a spouse enrolled on the small group health plan. If he or she delays enrollment in Part A or B when Medicare is primary, and instead remains on the group plan to try to preserve HSA-eligibility, the plan could refuse to pay claims and may face late enrollment penalties once he or she does sign up.
If an employer has 20 or more employees, Medicare pays secondary to the group health plan. This means that an individual can generally delay enrollment in Medicare Part A and B without incurring late penalties as long as he or she remains enrolled in qualifying insurance. Contrary to popular belief, Medicare is not automatic unless the individual is drawing Social Security.
But keep in mind that COBRA does not count as qualifying insurance, so an individual could wind up paying late penalties for life if he or she remains on COBRA and delays Medicare enrollment.
Also, if someone delays Medicare Part A past their 65th birthday, Part A coverage will go back retroactively 6 months, which makes them ineligible for an HSA for those retroactive months. So, HSA contributions should cease 6 months before enrollment in Part A and Part B (or apply for Social Security benefits while still working).
Thus, if an individual wants to postpone Medicare enrollment in order to maintain HSA-eligibility, they will need to consider delaying Medicare enrollment based upon employer size and also consider the retroactive effect of delaying enrollment.
Here is a helpful fact sheet published by CMS for reference on the subject.