Can an employee still contribute to an HSA if her covered spouse will soon be eligible for Medicare? If so, how much? Can she use the HSA to pay for her spouse’s medical expenses?

First, it is important to keep in mind that the employee’s HSA eligibility is based upon whether she meets the HSA eligibility criteria, regardless of whether her spouse or any other individual enrolled on the HDHP is also HSA eligible.

To review, to be eligible to make or receive HSA contributions, an individual must:

• Be covered by a qualified HDHP.
• Not have other “impermissible coverage” (i.e., coverage that provides medical benefits before the HDHP statutory minimum deductible is met, with certain exceptions - e.g., preventive care).
• Not enrolled in Medicare (It is actual enrollment in, and not simply eligibility for, Medicare that precludes HSA eligibility).
• Not be claimed as a dependent on someone else’s tax return.

Therefore, if the employee’s spouse enrolls in Medicare, the spouse would no longer be eligible to make HSA contributions. However, the employee’s HSA eligibility would not be impacted.

Second, the employee’s HSA contribution limit would be based upon the IRS annual maximum for the applicable HDHP coverage tier. For 2022, the annual HSA contribution limit is $3,650 for self-only coverage and $7,300 for family coverage; the additional catch-up contribution (for those ages 55 or older) is $1,000.

Accordingly, if the employee maintains the family HDHP coverage through 2022, the annual family limit of $7,300 would apply. (The family HSA contribution limit applies to an employee with family tier coverage, regardless of the HSA-eligibility status of the other covered individuals.) If the spouse did not make any HSA contributions in 2022 prior to Medicare enrollment, the employee could make or receive a total of $7,300 in contributions to her HSA plus, if applicable, the additional $1,000 catch-up contribution. (Note that if the spouse had remained HSA eligible, the couple could not collectively contribute more than the annual family coverage limit.)

Alternatively, if the employee switches to single-only coverage midyear following the spouse’s Medicare enrollment, the employee could only contribute the maximum based upon the single coverage tier for the remainder of the year. For example, assume the employee is HSA eligible for the entire 2022 tax year but switches from family to single HDHP coverage as of July 1, 2022. In such a case, the employee could contribute 6/12 (or 1/2) of the family contribution maximum of $7,300 or $3,650, plus 1/2 of the single contribution maximum of $3,650 or $1,825. So, her maximum permitted contribution would be $5,475 plus an additional $1,000 catch-up if she is eligible.

Finally, the employee can use her HSA funds to reimburse the qualified medical expenses of herself, her spouse and any tax dependents on a tax-free basis. Her spouse can be enrolled in Medicare (or other disqualifying coverage) at the time the distribution is made. The HSA funds can be used to reimburse the spouse’s Medicare deductibles, coinsurance and copays, unreimbursed dental and vision expenses, over-the-counter drugs, medicine, equipment and other qualifying expenses.

However, the spouse’s Medicare premiums could only be reimbursed when the employee turns 65 and then, only prospectively. But Medicare supplemental policies cannot be reimbursed from the HSA on a tax-advantaged basis even after the employee reaches age 65.

To summarize, the spouse’s Medicare enrollment does not impact the employee’s eligibility to contribute to an HSA based upon the applicable HDHP coverage tier(s). Additionally, the employee’s HSA funds can continue to be used to pay the spouse’s qualified medical expenses after the spouse’s Medicare enrollment.