Medicare and HSAs

[David Irwin]

Wife is turning 65 in January 2019. Husband is turning 65 in December 2018. He is a partner in financial firm making excess of $170,000. Currently they have group health insurance through his employment. It is a HSA plan that they contribute to. They say the firm does not assist in paying for the premium for partners so they premium is $1,500. Neither have Part A or Part B.

We are looking at enrolling both in Part A and Part B with a January 1, 2019 effective date and dropping the group health insurance (and thus quit contributing to the HSA). By doing this, I don't think there is any tax consequences or late enrollment penalties. Thoughts?

 

[WCMason]

Wife is turning 65 in January 2019. Husband is turning 65 in December 2018. He is a partner in financial firm making excess of $170,000. Currently they have group health insurance through his employment. It is a HSA plan that they contribute to. They say the firm does not assist in paying for the premium for partners so they premium is $1,500. Neither have Part A or Part B.

We are looking at enrolling both in Part A and Part B with a January 1, 2019 effective date and dropping the group health insurance (and thus quit contributing to the HSA). By doing this, I don't think there is any tax consequences or late enrollment penalties. Thoughts?

Because his Part A effective date will be December 1 he’s allowed to contribute 11/12 of the max contribution for 2018, or $7242. If he contributed the max for the entire year, $7900, he may be subject to excess contribution penalty of 6% on that 1/12 of the max, $658. That would be a penalty of $39.50 (6% of $658) on the contributions plus 6% of any future earnings on that 39 bucks. To avoid the possibility of an IRS penalty his employer would need to pull out the $658 and pay it to him less the usual withholding. He should consult with his tax preparer and benefits office.

 

[joe92275]

Because his Part A effective date will be December 1 he’s allowed to contribute 11/12 of the max contribution for 2018, or $7242. If he contributed the max for the entire year, $7900, he may be subject to excess contribution penalty of 6% on that 1/12 of the max, $658. That would be a penalty of $39.50 (6% of $658) on the contributions plus 6% of any future earnings on that 39 bucks. To avoid the possibility of an IRS penalty his employer would need to pull out the $658 and pay it to him less the usual withholding. He should consult with his tax preparer and benefits office.

This is a very well thought out and detailed answer. Impressive.

 

[TwoCents]

Wife is turning 65 in January 2019. Husband is turning 65 in December 2018. He is a partner in financial firm making excess of $170,000. Currently they have group health insurance through his employment. It is a HSA plan that they contribute to. They say the firm does not assist in paying for the premium for partners so they premium is $1,500. Neither have Part A or Part B.

We are looking at enrolling both in Part A and Part B with a January 1, 2019 effective date and dropping the group health insurance (and thus quit contributing to the HSA). By doing this, I don't think there is any tax consequences or late enrollment penalties. Thoughts?

Getting his Part A & B to start 1/1/19 in theory shouldn't be a difficult thing to do, but my money says it'll be harder to do than necessary. I'm going with WCMason on this one.

 

[WCMason]

Getting his Part A & B to start 1/1/19 in theory shouldn't be a difficult thing to do, but my money says it'll be harder to do than necessary. I'm going with WCMason on this one.

I should have anticipated the OP might ask “why can’t he get a January 1 effective date for Part A” question. Part A is always backdated up to six months so the only way he can get a January 1 start for it is to apply next July. No exceptions to that rule.

 

[TwoCents]

I should have anticipated the OP might ask “why can’t he get a January 1 effective date for Part A” question. Part A is always backdated up to six months so the only way he can get a January 1 start for it is to apply next July. No exceptions to that rule.

Excellent point; forgot all about it (I promise I knew the 6-month rule!).

 

[gregj]

Because his Part A effective date will be December 1

why? From OP's original post, he's not losing group coverage until Dec 31.

 

[LostDollar]

he turned 65 in Dec.

 

[TwoCents]

why? From OP's original post, he's not losing group coverage until Dec 31.

Because of this little Medicare/SSA rule (HI = Hospital Insurance = Part A): Premium-free HI for the aged begins with the month in which the individual attains age 65, provided he or she files an application for HI or for cash benefits and HI within 6 months of the month in which he or she attains age 65. If the application is filed later than that, HI entitlement can be retroactive for only 6 months.

I suppose the next question is can you decline the retroactive Part A?

 

[gregj]

hmmm. I'd need to double check, but feels like I have clients who've left group coverage post-65 whose Part A coverage start date did not incur this 6-month retro thing you mention.