Medicare, Health Reimbursement Arrangement, and HSA

[Dan32]

Been retired for some time and turning 65 soon - so Medicare. Looks like a Medicare Advantage plan is probably best for me. So what's the best way to pay for it?

My choices are:

1. I will have a Health Reimbursement Arrangement (HRA) funded by Megacorp retirement plan to the tune of ~$1200 / yr. Can not use this for Medicare B portion but can use it for any Med Advantage premium as well as other medical expenses. Unused funds at the end of the yr are rolled over to the next year.

2. I also have an HSA which is invested. This can be used for Medicare B premiums or any other healthcare costs other than a Medigap plan.

3. Pay with after tax dollars for Medicare out of my Social Security check.

My current plan is to try and deplete the HRA each year. My plan for Medicare Part B was to use the HSA to pay for the premiums, but since that account has been growing tax free, I'm having some second thoughts. It seems most? people use their HSA to pay for Part B premiums, but would I be missing out on some tax free growth in the funds used to pay the premiums? Note I'm still leaning towards keeping it simple and using the HSA to pay for the premiums but would like to hear other's opinions.

Thanks!

 

[Sue J]

If you are already receiving Social Security the Medicare Part B ($148.50 in 2021) will automatically be deducted from your SS benefit. DH has a retiree HRA and they automatically reimburse us every month for that. His HRA is administered by VIA Benefits and starting in 2021 they have an option to set that up on their website. Check with your HRA administrator.

Oops, reread your post and I see that your HRA cannot be used for Part B. Is there a reason they don't allow it for Part B?

You can use your HSA and reimburse yourself monthly or annually for your Part B. Or, let it stay in the HSA growing tax free, keep track of your expenses and reimburse yourself later at any time. Just keep adequate records.

 

[MichaelB]

Do you have any prior year eligible medical expenses or insurance premiums that you did not itemized /deduct in your tax return? If so, one more option for the HSA funds.

 

[RunningBum]

The one drawback to HSAs is that they are not good for a non-spouse to inherit. The beneficiary must take a full withdrawal in the first year and it is all taxable income. Let it grow tax free if you want, but save records and use them to reimburse yourself at some point. For sure use an HSA before a Roth since both grow tax free and your beneficiary is not taxed on a Roth.

 

[Dan32]

I'm unsure why I can't use the HRA for Medicare B. That info came from Viabenefits. So if you are getting Part B reimbursed from them I might need to recheck that info.

We don't have a lot of old medical records to submit. It does seem though that it's better to spend down an HSA before death. Keeping records to submit for reimbursement later might be an optimal approach, but it seems odd that there's no time limit on when these records can be submitted?? Hard to imagine keeping records for 20 years and submitting them when you think your close to end of life.

 

[RunningBum]

We don't have a lot of old medical records to submit. It does seem though that it's better to spend down an HSA before death. Keeping records to submit for reimbursement later might be an optimal approach, but it seems odd that there's no time limit on when these records can be submitted?? Hard to imagine keeping records for 20 years and submitting them when you think your close to end of life.

From the IRS:
https://www.irs.gov/publications/p969#en_US_2020_publink1000204094

Balance in an HSA

https://www.irs.gov/publications/p969 An HSA is generally exempt from tax. You are permitted to take a distribution from your HSA at any time; however, only those amounts used exclusively to pay for qualified medical expenses are tax free. Amounts that remain at the end of the year are generally carried over to the next year (see Excess contributions , earlier). Earnings on amounts in an HSA aren’t included in your income while held in the HSA.

Bold italicized by me.

 

[Gotadimple]

HRA: your MedAdvantage premium (some plans cost $0 depending on choices) + co pays and deductibles, + dental premium/expenses, + vision premium/expenses. Even tho' some Medadvantage plans can provide dental and vision benefits, they are limited.

You cannot contribute to an HSA once you start Medicare. So your choice to leave it invested is a good one. Keep track of all spending including Plan B premiums, co-pays, deductibles THAT EXCEED YOUR HRA ACCOUNT, and accumulate them - and close out the HSA account once your spending over time is equal to the balance in the liquidated account. Be aware there may be a charge for closing your HSA, just factor that into your calculations. Also, be aware that megacorp can take away the HRA at any point.

Social Security is not fully taxed, as your payroll is because it is based on your retirement income. Once you begin Medicare it is assumed your Part B premiums will come out of your Social Security (you select % of income tax deduction from a range of choices), and you can optionally also have your MedAdvantage premiums paid from your Social Security check. Regardless of where you pay for Part B or MedAdvantage, they are expenses that can be funded by either the HRA or HSA, depending on your situation.

- Rita

 

[Dan32]

Running Bum - Did you bold that section to imply that there is no time limit on when to submit an expense so long that it was after the HSA was established? or to imply that you don't lose any remaining balance in an HSA at year end?

My post was suggesting that I could store 20+ years of medical expenses in a file and then submit them to take advantage of tax free growth in the HSA. Seems like this shouldn't be allowed - but maybe it is.

 

[Dan32]

Thanks Gotadimple. Spot on about the HRA. Just as I am becoming eligible I'm losing the dental portion of the HRA.

 

[Gotadimple]

Running Bum - Did you bold that section to imply that there is no time limit on when to submit an expense so long that it was after the HSA was established? or to imply that you don't lose any remaining balance in an HSA at year end?

My post was suggesting that I could store 20+ years of medical expenses in a file and then submit them to take advantage of tax free growth in the HSA. Seems like this shouldn't be allowed - but maybe it is.

RunningBum's quote is from the IRS.

You can use the HSA or leave it alone. Unlike an HRA, funds in the HSA remain available year over year.

Many people just accumulate expenses and take a one-time distribution (i.e., close out the account).

- Rita

 

[RunningBum]

Running Bum - Did you bold that section to imply that there is no time limit on when to submit an expense so long that it was after the HSA was established? or to imply that you don't lose any remaining balance in an HSA at year end?

My post was suggesting that I could store 20+ years of medical expenses in a file and then submit them to take advantage of tax free growth in the HSA. Seems like this shouldn't be allowed - but maybe it is.

It is allowed. I've got years and years of receipts. Many financial articles suggest holding receipts and letting the account grow tax free and reimbursing yourself in a later year so this is a proven strategy. I quoted the actual IRS publication where it simply says "at any time" with no clarification that you have to withdraw expenses in the year incurred, or anything of that nature.

 

[wmc1000]

Running Bum - Did you bold that section to imply that there is no time limit on when to submit an expense so long that it was after the HSA was established? or to imply that you don't lose any remaining balance in an HSA at year end?

My post was suggesting that I could store 20+ years of medical expenses in a file and then submit them to take advantage of tax free growth in the HSA. Seems like this shouldn't be allowed - but maybe it is.

My HSA doesn't require me to submit any documentation for a withdrawal. I just transfer the funds from my HSA to my savings account. I simply make a spreadsheet for the items I want to reimburse myself for and keep it with my tax records.

Doesn't matter when as long as they occurred after the HSA went into effect.

I then simply mark my tax return that all withdrawals were used for eligible expenses.

 

[Dan32]

RunningBum and wmc1000 - Thanks!!