HSA Rules Shift as Medicare Enrollment Ends Contributions

Millions of Americans nearing age 65 face a key change in how they handle Health Savings Accounts when they sign up for Medicare. Contributions to an HSA must stop on the first day of Medicare enrollment, but the account balance stays available for qualified medical expenses without taxes or penalties. This rule, long in place, comes into sharper focus with recent expansions to HSA eligibility under new federal laws.

Background

Health Savings Accounts let people save money before taxes to cover medical bills. Workers with high-deductible health plans can put money in these accounts each year. The funds grow tax-free, and withdrawals for doctor visits, drugs, or other approved costs also avoid taxes. People often build these accounts over years to pay for care in retirement.

Medicare kicks in at age 65 for most. It provides hospital insurance through Part A and doctor coverage through Part B. Many sign up the month they turn 65. At that point, the government treats Medicare as other health coverage. Federal rules say you cannot add new money to an HSA if you have Medicare, even if you keep working and have a job-based high-deductible plan. This has been the case for years, but recent tax law changes from the One Big Beautiful Bill Act, passed in July 2025, bring fresh options for those not yet on Medicare.

The IRS issued Notice 2026-05 this month to explain these updates. The law makes bronze and catastrophic plans from health insurance exchanges count as high-deductible plans for HSA purposes starting January 1, 2026. It also allows permanent use of telehealth services without losing HSA eligibility and treats certain direct primary care arrangements as non-disqualifying. These shifts aim to help more people, especially those buying individual coverage, save through HSAs before Medicare starts.

Before these changes, strict rules on deductibles and out-of-pocket limits kept many exchange plans out of HSA reach. Bronze plans cover 60% of costs on average, and catastrophic plans limit enrollment to under-30s or those with hardship exemptions. Now, these plans qualify if offered on an exchange, even off-exchange versions that match them. The IRS offers a safe harbor: if you pick one and have no reason to think it's not on the exchange, you stay eligible.

Key Details

When Medicare begins, HSA contributions end immediately. Say you turn 65 in March and enroll in Medicare Part A that month. You cannot contribute to your HSA starting March 1, even if your job plan allows it. Existing funds remain yours. You can use them tax-free for Medicare premiums, deductibles, copays, and coinsurance under Parts A, B, D, or Medicare Advantage. Long-term care insurance premiums also qualify up to set limits.

Contribution Limits and New Expansions

For 2026, self-only coverage allows up to $4,400 in contributions, or $8,750 for family plans, if eligible. Catch-up contributions of $1,000 apply for those 55 and older, but only before Medicare. The new law sets bronze and catastrophic plans as HSA-eligible from 2026. These plans have lower premiums but higher deductibles, fitting the HSA model of saving ahead for big bills.

Telehealth now works permanently without triggering ineligibility. You can get remote care before hitting your deductible, effective back to January 1, 2025. Direct primary care setups, where you pay a monthly fee for routine visits, no longer count as disqualifying coverage if fees stay under $150 for individuals or $300 for families starting 2026. HSA money can cover those fees tax-free.

If you keep working past 65, you might delay Medicare Part B to avoid gaps. But Part A often starts automatically if you paid Medicare taxes. Enrolling in Part A ends HSA contributions, even if you skip Part B. Employed people with group coverage can sometimes delay both parts without penalty, keeping HSA contributions open until they leave the job.

"People often forget that Medicare enrollment stops HSA deposits right away, but the money already in there is a gold mine for retirement health costs." – Sarah Jenkins, certified financial planner who advises on retirement health benefits

Excess contributions made while Medicare-eligible face income taxes plus a 10% penalty. You must stay in an HSA-eligible plan for a testing period from December 1 of the contribution year through December 31 of the next to avoid this.

What This Means

Workers nearing 65 who still contribute to HSAs need to plan enrollment timing. If you expect high medical costs, max contributions before Medicare starts. Those under 65 gain more plan choices in 2026. Bronze and catastrophic options open HSAs to people who skipped them due to old rules. Lower-income folks might qualify for catastrophic plans through hardship exemptions.

For Medicare users, HSAs turn into retirement health accounts. Balances roll over year to year, invested like a 401(k) in stocks, bonds, or funds. After age 65, non-medical withdrawals face only income taxes, no penalty. This makes HSAs flexible for long-term care or other needs.

Families see impacts too. Spouses can keep contributing if not on Medicare and covered by a qualifying plan. But Medicare counts as family coverage, so coordination matters. Employers offering direct primary care must report fees on W-2s starting 2026.

Indian Health Services users get relief. Those enrolling in bronze plans with cost-sharing reductions keep HSA eligibility, even with recent IHS care. Individual Coverage Health Reimbursement Arrangements pair with these new plans without issues, if set up right.

Open enrollment for 2026 plans starts soon. People shopping exchanges should check bronze and catastrophic labels for HSA fits. Financial advisors note many leave HSA money untouched too long, missing growth potential. With healthcare costs rising, these accounts offer a steady way to cover gaps in Medicare, which lacks dental, vision, or hearing aid support.

The IRS seeks comments on Notice 2026-05 through March 2026. More rules may follow on direct primary care details or other edges. For now, the changes broaden access, but the Medicare cutoff remains firm: contribute fully before signing up.