HSA Owners Beware This Common Part A Mistake!

This is the second MythBuster video in our series and it stems from a message that I got within the past few days that just frustrates me. This is a variation on probably the single most frequent myth that I hear around Medicare. Here's the message. I'm actively working full-time for a large company and an agent advised me to sign up for Medicare Part A. Can I unenroll since I have been making HSA contributions? I heard in your video, favorite color, all colors. If you're confused by that last part, it's because in almost all of my videos, I hide a secret code word to prove that you've made it to a certain point before commenting. You better believe that there's one of those in this one. Most of the time when I get messages like the one that our friend sent in where it recommends Part A only, it is coming from the recommendation of someone in Human Resources that is incorrectly advising employees to get Part A only. In this instance, our friend says that an agent advised them to get Part A, which is unfortunate and maybe that agent will see this video to help with future cases. So let's bust this myth. The main myth here is that you should take Medicare at age 65 and what I hear all the time is, well, you don't have to take Medicare Part B at 65 if you are working, but you do have to take Part A or you'll be penalized. I want to be as clear as I can be here. When we are talking about Medicare penalties, there are two possible options. Part B penalties as in Bravo and Part D penalties as in drugs. Part B, so Bravo, penalties come when you are eligible for Medicare, you are not covered by a group health plan, this would be through an employer, and you decide not to get Part B when you should, meaning when you are eligible for Medicare at 65. The penalty comes in the future if you ever decide to get Part B later and that penalty is 10% for every year that you do not take Part B when you should and you were not covered by a group health plan through work. Part D as in drug penalties come when you are eligible for Medicare, you are not covered by a creditable drug plan. Now most, not all, but most employer plans have creditable drug coverage. So if you're eligible for Medicare, you are not on a creditable drug plan, and you do not sign up for Part D, this penalty comes in the future if you ever decide to get a Part D plan later and that penalty is a 1% penalty per month that you did not have creditable drug coverage or Part D. It is 1% of the base Medicare beneficiary premium for Part D, both the Part B and the Part D penalties last the rest of your life. There is no penalty on Part A. Now here is what we need everyone to understand, you, the person going on Medicare, agents, and HR professionals. There will not be any Medicare penalties for anyone if you delay Medicare past 65, if you are working or your spouse is working, and you are covered by a group health plan through that employer. This eliminates the threat of the Part B penalty, and if you have creditable drug coverage through that same work plan, that eliminates the threat of the Part D penalty until you lose coverage through the work plan, either because you retired, you got let go, or you want to keep working and you just decided to switch to Medicare which might cost you less. There is no such thing as a creditable medical plan through work when we're talking about Medicare. It's a creditable drug plan and I hear that all the time too. People say that you need a creditable health plan to avoid the Part B penalty. No, it's just a group health plan through work and it's the drug plan that is attached to the employer plan that needs to be creditable. Any employer that offers health coverage that includes prescription drug coverage is required to provide a letter of creditable drug coverage to you, if they in fact have a creditable drug plan. You can ask your HR benefits manager whether or not your drug coverage aspect of your plan is creditable to make sure that you're all set. Okay, are we all on the same page here? No Medicare penalties if you are covered by an employer plan and someone is actively working. Things change for retiree plans where neither you nor your spouse are working, but if one of you is actively working, no penalties. Not for you, not for your spouse, if your spouse is covered by that plan as well. Now, I'm sure somebody will have made it to this point and they will say, well, what about if the employer is small, meaning fewer than 20 employees? You have to get Medicare or you'll be penalized. No, the Medicare penalties do not come for delaying Medicare while working for a less than 20 employee company. You are not penalized for life for Part B and Part D in this case. A different problem is happening here though. We have a primary and a secondary payer issue. For those of you on a company plan and your company has fewer than 20 employees, once you turn 65, you are now eligible for Medicare. Medicare becomes what we call the primary payer and your employer plan becomes the secondary payer. What this means is that any hospital or medical bill that you have will first go to Medicare to pay and then after Medicare has paid its part, the remaining amount will go to the employer insurance plan second. Well, in this situation with Medicare being the primary payer and you do not take Medicare, if a bill comes through to your employer insurance plan, what the company insurance plan is legally allowed to do is say, hey, we are secondary. We can see that Medicare has not paid yet because you don't have it. So we aren't paying anything until Medicare pays first. This leaves you responsible for the full cost of these bills. We have seen this happen. It is not pretty. Now, not every group health insurance company does this where they refuse to pay, but a lot of them do and they all can if they want to. So a very clear difference here for small companies. You aren't seeing a lifelong Medicare penalty, but you can see the full responsibility of all of your hospital and medical costs coming on to you if you don't have Medicare in this situation. All right, back to the message that I received. The agent advised this person to just take Part A. This is a common thing that we hear. People think Part A doesn't cost anything because I've accumulated enough work credits. I'll just take it so that I'm double covered. And if you do not have a health savings account, an HSA, this logic is perfectly reasonable. But if you do have an HSA, which this person did, this logic is not good. When we are talking about Medicare and health savings accounts or HSAs, it's important to understand that neither you nor your employer are allowed to make any HSA contributions once you go on any part of Medicare. Even if you just take Part A only, you must stop HSA contributions. This friend of ours who wrote in was advised to take Part A only and continue to make HSA contributions. This is a no-no. For those of you with a high-deductible health plan paired with an HSA through work, we advise you not to take Part A only so that you can continue to make HSA contributions, you can continue to have your company contribute free money on your behalf, and you can continue to grow your HSA balance tax-free through those contributions and investing opportunities. We have a detailed video all about HSA strategies that looks like this, and it's linked in the description of this video. Well, what if you messed up or your agent or HR person gave you bad information? Can you just reverse it? Medicare is pretty flexible around when you can jump on and off Part B, but Part A, if you have signed up for premium-free Part A, you're stuck on it. You're not dropping it. This changes if you don't have the work credits and you're paying for Part A, but for 99% of folks on Medicare who have Part A, they are on the no-premium version and they are stuck once you decide to jump on to Part A, which means that you just made an irreversible Medicare decision and you need to stop HSA contributions. But what if you didn't stop contributions and you kept putting money into your HSA? Well, it depends on how long it's been. If it was just a couple of months, just request the excess contributions from the company holding your HSA funds. This is called a custodian. If it's been years, you'll need to pull those funds out and claim that income for tax purposes. If you get audited, there is an excess contribution penalty on those funds if it's left in, as well as the gains on those funds if you had them invested. There's a video that looks a lot like this that goes into more detail around the penalty. It's linked in the description as well. The secret phrase to show that you've made it this far is free money. If you use that in the comments, then I'll know that you've made it to this point and I can take those comments a little bit more seriously. Employer HSA contributions are free money to you and an HSA is my all-time favorite account because it has three massive tax advantages that I cover in that other video. I have an older video that goes over when to stop your HSA contributions as you approach Medicare, but it's time to give that one an update. So I'm working on that one right now. It should show up at the end of this video once it's done, but to clear up this myth once and for all, there are very common situations where you do not need to take Medicare at 65 and you won't want to take Medicare at 65 and you won't be penalized. If you have an HSA, do not take Medicare Part A only or else you will need to stop HSA contributions, both you and your employer. Once you go on Part A, if you aren't paying premiums for it, you're stuck on it and you can't jump back off. Okay, here is the deep dive video about Medicare and HSAs. If it's not there yet, it will be soon. So subscribe to be notified when it is released. Here is a video all about when you do not want to take Medicare at 65 as well as when you do want to. I will see you in one of those.