A provision included in President Donald Trump’s budget proposal would allow Medicare beneficiaries a new method to save for health care costs in a tax-advantaged manner. His proposal calls for an option which would allow those on Medicare to make tax-deductible contributions to a health savings account (HSA). This would be a change to today’s landscape, as currently, the IRS does not allow Medicare beneficiaries to contribute to HSAs. The proposal included few details as to how exactly this new law would be rolled out, and it’s not clear whether or not Congress would support the new rule.
HSAs offer a triple tax benefit, making them one of the most efficient ways to stash away money on expenses that, eventually, you’re likely going to need to use.
- Contribute tax-free – they allow the insured the ability to save money on a tax-deductible and pre-tax basis.
- Grow tax-free – your contributions can grow tax-free.
- Withdraw tax-free – you have the ability to withdraw money without penalty or tax for things used for qualified medical expenses (including Medicare premiums).
You are able to spend these dollars on certain long-term care services. Because HSAs provide 100% tax-free growth pay why not medical bills with cash and save your receipts. My general thought is to defer spending your HSA until you want to withdraw your HSA tax-free and use your receipts to back you up.
HSAs are seen throughout the retirement landscape as a valued financial tool – more than 20 million Americans were enrolled in one1. While Medicare beneficiaries can’t make contributions under the current legal guidelines, they’re still allowed to withdraw and use the funds they spent their working years compiling for their qualified medical expenses. With ample time for growth, a sizable health savings account can be a formidable tool.
With retirement health care costs estimated at $275,000 for a couple, it’s easy to understand how valuable an account such as this can be2. This number is expected to rise and does not include estimates for long-term care expenses. For 2018, those with single insurance coverage and a health savings accounts are able to contribute up to $3,450; while those with family coverage may put away up to $6,9003. The proposal did not shed any light on what limits might be for Medicare beneficiaries if it were to go into law.
Although most proposals in President Trump’s freshly released 2019 budget plan are unlikely to become actual laws, they point out clues as to what future actions and priorities might be. If the complete proposal were to become law in its entirety, it could effectively reduce Medicare spending by $236 billion over the next decade. In addition, it could eliminate key federal block grants which the states use to fund various programs for senior citizens. It could also slash funding for food stamps, which roughly 5 million older adults receive4, moving toward a new system for home-delivered meals in a box.
Here is an excerpt from the Trump Administration’s budget proposal:
“… Currently, Medicare beneficiaries in high-deductible health plans are not allowed to make tax-deductible contributions to their Health Savings Accounts (HSAs) or Medicare Savings Accounts (MSAs). This proposal would give Medicare beneficiaries greater flexibility to take control of their health …”
The proposal also states that account holders would have the opportunity to execute a one-time rollover of their funds from a privately held HSA to their potential Medicare health savings accounts.
There are also potentially wide-ranging benefits to America as a whole if this proposal becomes law. A study by the American Bankers Association’s HSA Council, an association representing HSA-sponsoring plans, estimates the federal government could actually save $72 billion over a decade. That is if it let working seniors contribute to a health savings account, provided they also have an HSA-qualified plan through their employer and spring for all of their own medical costs below the deductible. Insurance would only cover costs above the deductible.
While this proposal would seemingly be a boon to retirees’ flexibility and benefit them in the realm of taxes, we will have to wait and see if it is actually a proactive measure from the Administration to benefit seniors and retirees, or if it would simply be outweighing other things that may be taken away from their health care options.
If you’re lucky enough to have an HSA, max it out!