Please Explain Medicare

[Rianne]

We’re 62 and contributing max to HSA. I was under the impression there will always be unexpected medical expenses, deductibles, some HC costs not covered etc. under Medicare.

I spoke to our medical broker yesterday making sure we were signed up to our HSA correctly. I guess I set it up so DH and I are on the same HSA, me the primary, since the ACA plan is in my name, DH dependent. We have > $18K in there. I also understand we can pay a portion of our Medicare premiums with HSA $$.

Our broker suggested we not build up the HSA b/c Medicare takes care of just about everything to do with medical issues. Her closest estimate is that combined with the very best supplement and prescription supplement, we’ll pay at most $600 total for DH/myself ($300 each). She said the deductible might be several hundred $$. No more. She’s always been helpful, never steered us wrong. She’s our go to for any ACA concerns. We live in Illinois. Does living in Illinois make a difference on coverage?

 

[CardsFan]

It all depends whether you get a supplement, or Medicare advantage plan.

As I understand, you can use the HSA to pay for you SSA costs, but not your supplement costs.

If you have unclaimed costs from the past, you can submit those at any time.

I chose to draw down my HSA before MC, and a hip replacement made that very easy

I "think" MA costs like deductibles and co-pays can come out of the HSA tax free, but I would check on that.

The annual deductible for a Plan G is about $195, so that won't draw you down quickly.

From my evaluation, I see no great advantage of carrying a large HSA into MC.

Of course, you can always take it out and pay the taxes (not sure if there is an age requirement for this)

 

[audreyh1]

We built up our HSAs maxing out as long as we could. We plan to use it mostly to cover Medicare part B and D premiums.

There is also dental, eye correction, hearing aides not covered by Medicare.

There can be large deductibles on prescriptions with a schedule D plan. Some people run into the donut hole.

Some people use the HSA for long term care expenses.

HSA contributions lower your AGI directly, thus lowering your taxes. Why not max out? Why not pay for your eligible medical expenses like premiums with pre-tax dollars?

You need to open a second HSA for your DH so he can contribute the additional $1000 catch up contribution every year. HSAs are individual accounts, even though spouses can pay for each other’s eligible expenses.

 

[REWahoo]

I disagree with your broker.

A HSA account is a great way to avoid paying taxes on money you can use in retirement to pay for all sorts of health related expenses: dental expenses, LTC premiums, LTC expenses, to name just a few. The more you can add to that account the better IMO.

 

[CardsFan]

We built up our HSAs maxing out as long as we could. We plan to use it mostly to cover Medicare part B and D premiums.

There is also dental, eye correction, hearing aides not covered by Medicare.

There can be large deductibles on prescriptions with a schedule D plan. Some people run into the donut hole.

Some people use the HSA for long term care expenses.

HSA contributions lower your AGI directly, thus lowering your taxes. Why not max out? Why not pay for your eligible medical expenses like premiums with pre-tax dollars?

You need to open a second HSA for your DH so he can contribute the additional $1000 catch up contribution every year. HSAs are individual accounts, even though spouses can pay for each other’s eligible expenses.

Audrey brought up several things I forgot about, so I will stand corrected and say it makes sense to keep it going. In my case, I only had it for a few years, so depleting it with actual expenses made sense.

 

[RobbieB]

I maxed mine out until I hit 65. Now it's going to draw down to zero as it should.

 

[Kathe555]

I disagree with your broker. (Disclaimer, I'm your broker's competition).

I have clients who's drug expenses are in the tens of thousands of dollars, with a Medicare Drug Plan.

Save as much as you can through your HSA. Once you are eligible for Medicare, you won't be able to contribute to it any more.

And like OG said, it's tax deductible now, and then any expenses you have are tax free in the future (or the past) if you can prove what you've already spent while your HSA was open.

I scan all my receipts and have created a spreadsheet of all my medical/prescription expenses so that when it comes time to withdraw from my HSA I can use my past expenses if necessary.

 

[Aerides]

You'll probably want to gather together a complete list of stuff that an HSA covers, and then cross check that with things that medicare/health insurance don't.

dental/vision/hearing etc. getting one implant even with a discount plan is gonna be over $2k (x2 ppl, x30 years...yeah).
OTC stuff usually works too (bandages, pain meds).
Oh, I just had my meniscus repaired...and there was a $1200 facility fee for the surgery center that doesn't go to insurance, so it's OOP, but I can use HSA money for it.

Stuff like that. Copays also add up when you get a bit older, and the frequency of dr visits expands far beyond your annual PCP and gyno.

In some cases, if you needed special equipment or home mods to accommodate your incapacitation, HSA dollars might cover that.

I think the odds are in your favor that you'd find a way to spend any HSA dollars vs. look at the account when you're 90 years old and go "well huh that was a bad idea"

 

[ProspectiveBum]

OTC stuff usually works too (bandages, pain meds).

Thanks for this reminder. I recalled that these items were removed from HSA eligibility back in 2011, but the CARES act made them reimbursable from HSA funds again.

https://www.cnbc.com/amp/2020/04/23/use-your-fsa-or-hsa-funds-for-over-the-counter-medications.html

 

[Aerides]

Thanks for this reminder. I recalled that these items were removed from HSA eligibility back in 2011, but the CARES act made them reimbursable from HSA funds again.

https://www.cnbc.com/amp/2020/04/23/use-your-fsa-or-hsa-funds-for-over-the-counter-medications.html

I know! they used to be in then out, but it all adds up.

 

[harllee]

Your broker is wrong. We maxed out our HSAs (had about $100,000 in them at age 65) and now we are on Medicare and using the HSA to pay for Medicare premiums and large dental bills that Medicare does not pay for. We are also gong to be able to use some of the HSA to pay a portion of our entry fee to a Continuing Care Retirement Community.

 

[ProspectiveBum]

It seems to me there’s very little downside to maxing out contributions to an HSA. The worst case scenario seems to be that it becomes equivalent to a Traditional IRA after 65, except that there are no RMDs, so you can withdraw whatever you need from it (paying taxes on those withdrawals). That’s assuming you can’t offset those withdrawals with medical expenses to avoid the taxes.

Is there another negative I’m not seeing?

 

[pb4uski]

Once we are on Medicare, between Part B and Part D we'll be paying $312/month in 2020 dollars. HSA money can be used to pay for Part B and Part D premiums.

Assuming a 6% rate of return and 3% inflation rate (3% real rate of return) if we live to 85 we'll need $56k* today just to cover 20 years of Part B and Part D at $312/month.

Add another $100/month for dental and vision and that $56k becomes $74k.

Also, whatever is left can be used for nursing home care.

So yes, your broker is misinformed.... big time.


* PV of $312/month for 20 years discounted at 3%/annum.

 

[pb4uski]

It seems to me there’s very little downside to maxing out contributions to an HSA. The worst case scenario seems to be that it becomes equivalent to a Traditional IRA after 65, except that there are no RMDs, so you can withdraw whatever you need from it (paying taxes on those withdrawals). That’s assuming you can’t offset those withdrawals with medical expenses to avoid the taxes.

Is there another negative I’m not seeing?

No, you see it clearly.

After 65 if not used for eligible medical expenses it is just like a deductible IRA... withdraw with no penalty but pay tax on the withdrawal at ordinary income rates.... but with a benefit of no RMDs as you point out.

One disadvantage is that for a non-spousal beneficiary the total balance is immediately taxable where for a tIRA it has to be withdrawn and taxed within 10 years.

 

[BeachOrCity]

I disagree with your broker.

A HSA account is a great way to avoid paying taxes on money you can use in retirement to pay for all sorts of health related expenses: dental expenses, LTC premiums, LTC expenses, to name just a few. The more you can add to that account the better IMO.

^^^+1
HSA is the only tax free vehicle going in AND out. Max it. Always.
Don’t forget that once established you can use it 20 years later to reimburse expenses you paid long ago (any time after you opened it).

So let it grow let it grow let it grow!

 

[Rianne]

I'll correct our broker at the next meeting. She's been so efficient signing us up for ACA. I see she is completely wrong on this advice. Dental, vision, other OOP expenses add up and now I understand HSA for tIRA type savings. What was she thinking?

 

[Aerides]

I'll correct our broker at the next meeting. She's been so efficient signing us up for ACA. I see she is completely wrong on this advice. Dental, vision, other OOP expenses add up and now I understand HSA for tIRA type savings. What was she thinking?

We were using an FA about 10 years ago, when we were getting serious about RE, and I was the one who said "so we should be maxing our HSA's because we can take those with us right?" And I could see from his face that he'd never even thought of that before. Granted, HSA's were still kinda new then, and confused probably with non-rollover FSA's, but still...

 

[latexman]

I'll correct our broker at the next meeting. She's been so efficient signing us up for ACA. I see she is completely wrong on this advice. Dental, vision, other OOP expenses add up and now I understand HSA for tIRA type savings. What was she thinking?

I've never used a medical broker before, but the devil's advocate in me makes me wonder, "what's in it for them", with this seemingly bad advice? Have they tried to sell you something recently? Something with a commission?

 

[ShokWaveRider]

The problem we had with HSA accounts was that we did not think about it early enough to make a difference. Not sure how far $18k would go. For us that translates to 8 years of Medicare part G supplement payments where one's exposure is petty much Zero. This is a Medicare discussion right, when one gets to 65 right? I had a new pacemaker last year, completely covered by Medicare and Part G all bar $194 deductible.

What we have learned is that Medicare Advantage has too many pot holes in our area, it has worse coverage than the worst ACA Plans and a $6,700 MOOP. May as well spend $175 ($2,100 pa) a month on Part G and then choose a cheap Part D Plan (In our case this works as all ours meds are free from local pharmacies).

Think about it. The money companies spend on MA plan advertising must get covered somewhere, and those aging celebrities have to be paid by someone. To me this means the profits must be tremendous, and based on friends experiences, service below what one would expect. Those ads play all day here in Florida here we live, that cannot be cheap.

Straight Medicare + Supplement has the best coverage here, all our docs and specialist comment that they like the combination... I ask them. I ma personal friends with some billing personnel and hear a lot of sad stories, not to mention they have the most trouble with getting paid from MA Insurance companies.

 

[Rianne]

I've never used a medical broker before, but the devil's advocate in me makes me wonder, "what's in it for them", with this seemingly bad advice? Have they tried to sell you something recently? Something with a commission?

Our MA gets paid from the insurance co. We pay nothing. She actually saved us a few $K suggesting we take a bronze plan instead of a silver plan. The silver cost for premiums alone were $6K/year ($500 month). The bronze plan premiums are $96/year (that's $8/month) with a $6K deductible per person and it's an HD plan so we got an HSA. We've spent @ $2K OOP towards the deductible this year. If one of us hits the deductible, that's a full year of premiums on a silver plan. And the insurance discounts for some Dr visits are as much as a co-pay.


Although, she really did miss the boat regarding HSA build-up and medicare benefits.

 

[Rianne]

This is a Medicare discussion right, when one gets to 65 right?

Yes, I do not understand medicare. That's why I asked about the HSA benefits after 65. Many posters here ask about the ACA. That I understand. I am so grateful to be on the ACA, we've been on it since 2015. Talk about medicare and I'm confused. Here's one example:


My DSI refused medicare when she turned 65 to stay on my DB BCBS plan. I always thought you get penalized if you don't take medicare at 65. Now DB who will be 65 this year, plans to stay on his work HI and not take medicare. He tried to explain this to me and I am baffled. This sounds all wrong.

Then start with the part B, D, G plans and I'm done. I hate to ask anyone to explain it to avoid more confusion.

 

[Telly]

.....Now DB who will be 65 this year, plans to stay on his work HI and not take medicare. He tried to explain this to me and I am baffled. This sounds all wrong.

Then start with the part B, D, G plans and I'm done. I hate to ask anyone to explain it to avoid more confusion.

If one has a reasonable (coverage-wise) health insurance plan through their employer, is reaching age 65, is continuing employment, and wants to stay on the employer plan rather than going on Medicare, they can. Later, as they leave employment, a special event Medicare sign-up time for them gets triggered. Then they really do need to sign up. This is common.

 

[kaneohe]

The problem we had with HSA accounts was that we did not think about it early enough to make a difference. Not sure how far $18k would go. For us that translates to 8 years of Medicare part G supplement payments where one's exposure is petty much Zero. ................................................................................

translation is in the wrong language...........you can use HSA for Medicare pt B/D premiums but you cannot use for Plan G supplement premiums.

 

[ShokWaveRider]

translation is in the wrong language...........you can use HSA for Medicare pt B/D premiums but you cannot use for Plan G supplement premiums.

Understood. But what I meant was that $18k (If not in HSA, like us as we do not have HSA) goes a long way paying for a Supplement, but not very far in paying for a $100k Medical Bill that the supplement would cover.

 

[harllee]

DH and I started HSAs early and put in the max amount each year and invested it in the stock market. When we hit 65 between us we had about $100,000 and we moved the investment to CDs. We are now using it for Medicare premiums, Part D, dental (we have had alot of dental lately), prescription co pays, etc. We plan to move into a Continuing Care Community and we plan to pay part of the entry fee with our HSA so in that regard it is like long term care insurance for us.