A health savings account may help you save money on medical expenses, depending on your insurance type. If you are eligible, you can use your health savings account (HSA) to cover certain medical costs, according to HealthCare.gov.
How Does an HSA Work?
If you have a high deductible health plan, you can contribute to an HSA and use the untaxed money to cover medical costs, decreasing your total medical expenses.
High deductible health plans typically have lower monthly premiums than other insurance plans. However, individuals may pay more for medical services before coverage starts, per HealthCare.gov.
What Do Health Savings Accounts Cover?
You can use an HSA to pay for deductibles, copayments, and coinsurance.
However, you generally cannot use money from an HSA for monthly insurance premiums, unless you receive Medicare, health care continuation coverage, or unemployment compensation.
For long-term care insurance, you may be able to pay your premiums through a health savings account.
The Benefits of Health Savings Accounts
The advantage of using a health savings account is that funds are not subject to federal taxes when you contribute or withdraw money to pay for qualified medical expenses. You can also earn tax-free interest.
Should you have money left over in your account at the end of the year, it rolls over. The funds stay active, remaining in your account until you need them. Even if you change jobs or retire, you can keep your HSA.
In some cases, you can use your health savings account to cover your spouse’s and dependents’ medical expenses, even if they are not on your plan.
Health Savings Account Rules
2023 Contribution Amounts
The Internal Revenue Service sets contribution limits on HSA’s.
For 2023, individuals can contribute up to $3,850, and families can put up to $7,300 into a health savings account, Investopedia reports.
People who are 55 and older by the end of the tax year can make an additional $1,000 catch-up contribution.
Other Insurance Types
Other insurance plans can disqualify you from contributing funds to an HSA.
Individuals with dollar-first insurance plans – in which the insurer takes care of its share of an included service before the insured individual pays deductibles or copayments – cannot put funds into a health savings account for their outstanding health care fees.
Those on Medicare cannot add money to health savings accounts, though they can withdraw capital from their accounts to pay medical expenses that Medicare does not cover. While people using health savings accounts typically cannot use the funds to cover monthly premiums, there is an exception for Medicare beneficiaries.
Although health savings accounts have several advantages, they also impose restrictions on how you use your money.
Taking money from your account for nonmedical or unqualified expenses before you reach 65 results in a 20 percent tax penalty. The 20 percent tax penalty for ineligible withdrawals does not apply if you are 65 and older. Still, you must pay income tax.
Opening a Health Savings Account
There are several ways to open an HSA.
Employers can offer them, with the employer and the employee jointly funding the account.
Some health insurance companies provide health savings accounts with high deductible health plans.
Banks and financial institutions offer accounts for individuals.
How Does Medicare Affect Your Health Savings Account?
When you enroll in Medicare, you can no longer contribute pre-tax dollars to your health savings account. To put untaxed money in an HSA, you must have high deductible health insurance without additional disqualifying coverage, such as Medicare. Once you have Medicare, you can no longer add tax-free funds to your account.
After you enroll in Medicare, however, you can still access your health savings account. One of the advantages of health savings accounts is that they are vested. As a Medicare beneficiary, you can continue using untaxed funds to cover the medical expenses your insurance does not bear, such as deductibles, coinsurance, and copayments. You cannot, however, use tax-free money to pay for Medicare supplemental insurance.
While the Internal Revenue Service (IRS) prohibits people from using untaxed capital for high deductible health insurance plan premiums, the rule differs for Medicare. When you enroll, you can use your HSA to pay your Medicare premiums without taxes.
Withdrawing Money From Your HSA
People over 65 can withdraw funds from their health savings accounts for nonmedical expenses. Although these withdrawals are no longer tax-free, older adults do not incur the 20 percent tax penalty the IRS imposes on younger people taking funds HSA’s for ineligible expenses.
Since medical costs tend to increase with age, many prefer to keep their money in their health savings accounts to cover eligible medical expenses tax-free.
Delaying Medicare Enrollment
Some people with health savings accounts enroll in Medicare when they initially become eligible, forfeiting the ability to make HSA deposits for Medicare’s coverage. Others delay enrollment in order to continue making health savings account contributions.
According to the Journal of Accountancy, only individuals with employer-sponsored high deductible health insurance as their primary coverage can continue adding to their health savings accounts past retirement age by delaying Medicare enrollment.
Individuals with private insurance, continuation of health coverage (COBRA), or a health care exchange cannot fund their HSA’s after reaching retirement age.
People who continue to work at small companies after becoming eligible for Medicare must enroll in the program immediately to have any health insurance coverage.
Per MedicareInteractive.org, Medicare must be the primary insurance for those working at companies with fewer than 20 employees. Since the small employer’s health plan does not have to pay until after Medicare contributes, these individuals risk losing health coverage if they delay enrolling in Medicare. Deferment also results in a late penalty.
Those with health insurance from businesses with 20 or more employees can put off Medicare enrollment and continue placing funds into their health savings accounts. Because the company insurance would remain the primary insurer when they join Medicare, they can continue receiving health insurance coverage without Medicare.
Individuals who wish to delay enrolling in Medicare should not accept Social Security payments. This is because Social Security automatically registers beneficiaries for Medicare Part A, rendering them unable to make HSA deposits.
Medicare and the IRS recommend that people who have delayed enrollment after becoming eligible should cease health savings account contributions six months before joining Medicare to avoid a tax penalty. A six-month lookback period applies, as Medicare’s coverage is retroactive.
If you have an HSA, whether you should delay Medicare enrollment depends on your situation. The decision could significantly impact your finances. Speak to your elder law attorney to learn more about your options for your health savings account as you approach retirement age.
Assisted living facilities and nursing homes are long-term housing and care options for older adults. Although people sometimes use the terms assisted living and nursing home synonymously, they are distinct.
Understanding the differences between assisted living and nursing homes is critical for those considering where to live as they age. This is because assisted living communities and nursing homes provide different types of care. While assisted living is appropriate for active older adults who need support with everyday tasks, nursing homes provide medical care to adults with significant health issues.
What Is Assisted Living?
Older adults who can no longer live on their own but do not require round-the-clock medical care can benefit from assisted living. While assisted living facilities can have nurses on staff, the primary focus is not on health care, but rather on supporting residents with daily life.
Activities of daily living (ADLs) are six basic activities that healthy individuals can carry out on their own on a daily basis. Depending on an individual resident’s needs, an assisted living facility can provide aid with showering, dressing, preparing meals, completing household chores, and taking medication on time at the correct dose.
While giving necessary support, assisted living communities maximize adults’ independence and autonomy. Residents typically live in private units similar to traditional apartments with kitchens that are part of larger communities offering opportunities to socialize with fellow residents. Units can have safety features tailored to older adults with mobility challenges, such as shower bars, widened doorways, safety rails, and enhanced lighting.
Difference Between Assisted Living and Nursing Home
Compared to assisted living, nursing homes may be the right fit for those with significant medical conditions requiring round-the-clock care. Nursing homes can offer more extensive health care services that are unavailable in many assisted living facilities. Therefore, nursing homes can be more appropriate for those with severe health needs.
As they provide critical medical support, nursing homes can help people with mobility complications or cognitive challenges that limit their autonomy. For instance, a person diagnosed with severe dementia might do better in a nursing home than in an assisted living facility. Some nursing homes have specialized memory care units for those with dementia. Nursing home staff can also provide medical care and supervision as well as help with the six activities of daily living.
Like assisted living facilities, nursing homes also offer help with daily living, such as bathing or help with medication management, and can adapt to individuals’ needs. For instance, showers and bathtubs may have safety bars, and doors may be wide enough to accommodate wheelchairs.
Yet nursing homes offer residents less freedom and independence than assisted living communities. Those receiving care typically do not have their own kitchens and may share a room with another patient.
What Are the Costs of Assisted Living Facilities and Nursing Homes?
Assisted living facilities and nursing homes can constitute a significant expense for residents and their families.
According to SeniorLiving.org, the median cost of assisted living in 2021 was $4,500 per month. Because of the higher level of medical care, nursing homes tend to be more expensive than assisted living. A private room in a nursing home averages $9,034 per month, and a shared room $7,908 per month.
Individuals can pay for assisted living or nursing home fees out of pocket or through long-term care insurance. Medicare does not cover assisted living or nursing home fees.
Medicaid coverage, however, does extend to nursing home fees. Though Medicaid does not pay for room and board at assisted living facilities, it includes the skilled nursing care and emergency response services that residents of assisted living facilities receive.
Before selecting an assisted living facility or nursing home, research the community and ensure it is a good fit.
Congress established the Medicaid Money Follows the Person (MFP) Program to provide states with federal funding to help seniors who are receiving care in institutions but want to live at home.
However, it is not a permanent program and is due to expire in September 2027. Advocates have pushed for Congress to make MFP permanent, ensuring that states have funding for seniors who wish to return home from long-term care facilities.
What Is the Medicaid Money Follows the Pereson (MFP) Program?
MFP was established in 2005 to increase Medicaid enrollees’ access to home- and community-based services (HCBS). In part, its goal is to allow seniors to avoid nursing homes and other institutions, and instead receive care in their own homes and communities if they choose. Other beneficiaries of the program include people with disabilities.
MFP allows the Centers for Medicare and Medicaid Services to remove the restrictions that are placed on how funds are allocated for long-term services. It increases the use of HCBS services instead of long-term services and support.
How Does MFP Help Older Adults?
Throughout its existence, MFP has helped seniors who otherwise would have been institutionalized maintain control over their lives by providing a chance at independent living. In the nearly two decades since the program began, MFP has helped more than 107,000 people move from a nursing home or a long-term care facility back into their home. One evaluation found that MFP results in greater life satisfaction among participants.
Returning home from an institution is a tall task for most seniors. A major concern is the lack of staff to take care of an individual’s medical and personal needs. In many cases, seniors must rely on family members. MFP helps ease the burden of transitioning from care facilities back home.
Examples of the type of support MFP provides seniors as they move back home typically include:
Help paying for groceries
Short-term transitional housing
Security deposits for rental homes and apartments
The cost of necessities for setting up a home (e.g., stair-lifts, wheelchair ramps)
Can MFP Help Seniors Secure Housing?
The federal government funds the Medicaid Money Follows the Person program. Medicaid is prohibited from paying for housing directly. MFP allows states to use money from the program to pay for case management and transitional support services for seniors.
To address the needs of low-income seniors, state governments have used MFP funds to partner with housing authorities and developers to ensure more housing options are available for seniors who want to live independently.
Will the Medicaid Money Follows the Person Program End?
MFP has been a Medicaid demonstration program since 2008. Demonstrations are used to determine whether programs should become permanent. More than 40 states and territories currently are a part of MFP.
However, Congress has inconsistently funded MFP. The uncertainty about whether the program will have long-term funding has made it difficult for states to budget, so over time some states have been opting out of the program entirely. If MFP expires in 2027, many more seniors will be forced to live in long-term care facilities, losing the independence they desire.
It remains to be seen whether Congress will make the program permanent. If it does, states will have a set amount of money to increase seniors’ ability to live on their own as they age.
Learn more about the program at Medicaid.gov. For further guidance, speak to your elder law attorney.
The Senate and House have cleared the passage of a year-end $1.7 trillion appropriations bill that will benefit older adults on a number of fronts.
The bill, which runs more than 4,000 pages and includes a wide variety of legislation, heads to President Biden next for his signoff.
Here is a breakdown of some of the highlights that relate to supporting older Americans:
Health and Housing
Opt to age at home – The Money Follows the Person (MFP) Program has been helping older adults age in their own home or a community setting, rather than in nursing homes, since 1972. The newly passed bill extends MFP through September 2027.
Age in place safely – The omnibus bill has also doubled funding for the federal government’s Older Adult Home Modification Program from $15 million to $30 million.
For seniors with limited income, this program covers the cost of simple, low-cost home modifications – such as railings and temporary wheelchair ramps – that help them age in place safely.
Provide for your healthy spouse if you are on Medicaid in a nursing home – Medicaid beneficiaries who must reside in a long-term care facility but have a spouse still living at home will continue to see their healthy spouse protected from poverty.
Known as spousal impoverishment rules, these protections ensure that the healthy spouse receives income while their institutionalized spouse keeps their Medicaid eligibility. These protections, which are adjusted each year, will continue to be in place until September 2027.
Continue to see doctors online – Lawmakers have extended access to telehealth services for Medicare enrollees for another two years.
This program seeks to aid seniors with very limited income in securing housing that is within their means while also offering supportive services such as assistance with cooking and cleaning.
Contribute more to retirement – For older workers, the omnibus bill raises what are known as “catch-up” contribution limits for retirement savings. Taxpayers ages 60 to 63 will be allowed to contribute an extra $10,000 to their 401(k) starting in 2025.
Access 401(k) funds for emergencies – If you need to take money out of your 401(k) before reaching age 59½, under certain circumstances you will no longer have to pay the 10 percent penalty fee for withdrawing money early. As of the end of 2023, you will be allowed to withdraw up to $1,000 a year for unforeseen emergencies without incurring a penalty.
Wait longer to withdraw money from your retirement accounts – Previously, you were required to begin withdrawing money from your retirement plan account starting at age 72. This mandatory withdrawal is known as a required minimum distribution (RMD).
As of January 1, 2023, the new bill allows you to hold off until age 73 to take funds from these types of private retirement accounts.