Medicare Tips: Know how working affects Medicare coverage

For individuals who continue to work after becoming eligible for Medicare, it is important to be familiar with how your existing health care coverage may affect your Medicare enrollment decisions.

Some Medicare-eligible individuals may be enrolled in a high deductible health plan, or HDHP, which is a type of group health plan that an employer may offer to its employees. HDHPs have large deductibles that members must meet before receiving coverage, which means that HDHP members pay in full for most health care services until they reach their deductible for the year. Afterwards, the HDHP covers all of the members' costs for the remainder of the year.

If an individual has an health savings account and will soon be eligible for Medicare, it is important that they understand how enrolling into Medicare will affect their HSA.

Because their health care plan has a high deductible, employees commonly have HSAs into which they deposit pretax funds to use for qualified health expenses. Funds contributed to an HSA are not taxed when put into the HSA or when they are taken out as long as they are used to pay for qualified medical expenses. An individual's employer may oversee their HSA or the individual may have an HSA that is overseen by a bank, credit union, or insurance company.

If an individual enrolls in Medicare Part A and/or B, they can no longer contribute pretax dollars to their HSA. This is because to contribute pretax dollars to an HSA, an individual cannot have any health insurance other than an HDHP. The month an individual's Medicare begins, their account overseer should change their contribution to their HSA to zero dollars per month.

However, an individual may continue to withdraw money from their HSA after they enroll in Medicare to help pay for medical expenses, such as deductibles, premiums, copayments, and coinsurances. If an individual uses the account for qualified medical expenses, its funds will continue to be tax-free.