Enrolling in zero-premium Medicare Part A is irreversible. Think twice before you make that no-brainer decision.

When you turn 65 and are making decisions about your Medicare coverage, enrolling in Part A seems like a no-brainer. For most folks, it’s premium-free coverage for many inpatient services. Once you’re enrolled in Part A, you’re no longer allowed to contribute to a health savings account. If you’re working past age 65, though – that trade-off could complicate the decision.

BUT FIRST, WHAT’S PART A?

Medicare Part A, sometimes called hospital insurance, provides coverage for four types of services: inpatient hospital care, care received in a skilled nursing facility, home health care, and hospice care. Some fast facts about what you’ll pay for that coverage:

• Part A is premium-free for those who have paid payroll taxes for at least 40 quarters – or have a spouse who has. The vast majority of our population fits one of these descriptions.
• If neither you or your spouse has paid payroll taxes for at least 40 quarters, you’ll pay a premium for Part A. Premiums vary from year to year, but in 2023, those who have contributed for at least 30 quarters have a monthly premium of $278. Those with less than 30 quarters pay $506 per month.
• As we said above, once you enroll in premium-free Part A, you’re unable to continue contributing to any health savings account. You may, however, make qualified withdrawals.

There’s also copays and coinsurance you’ll be responsible for when you need these types of care.

So far, so good?

Let’s spend some time navigating your Part A enrollment options.

OPTION ZERO: IF YOUR EMPLOYER HAS LESS THAN 20 EMPLOYEES, YOU’LL LIKELY NEED TO ENROLL WHEN YOU’RE FIRST ELIGIBLE

We call this option zero because those working for smaller employers probably don’t have many options here.

In this situation, laws require that Medicare pay for your healthcare before any other coverage, like that offered by your employer. Your employer and insurer both know this, and probably don’t want to spend any more money than they have to. So, their business rules will probably require you to enroll in Medicare Part A and B when you’re first eligible. Otherwise, your employer-based insurance may not pay for any care.

If you’re employed by a firm with more than 20 employees, though, you have some things to consider.

OPTION ONE: ENROLL IN PART A WHEN FIRST ELIGIBLE

Conventional wisdom tells us that enrolling in Part A is a no-brainer. Premium-free hospital coverage has quite the allure. And, if you want to drop Part A coverage at any time to restart HSA contributions, you’ll surely be able to. Right?

Some folks look at a form titled “Request for termination of premium Part A, Part B, or Part B immunosuppressive drug coverage,” and take that to mean that they may leave Part A at any time. They do so, hoping they’ll once again be able to make tax-advantaged contributions to their HSAs.

Take one more look at that title, though, dear reader. The form only allows for the termination of premium Part A, not premium-free Part A. You can only terminate Part A coverage if you’re paying for it. If you’re not paying for it, like the vast majority of Americans, you’re stuck with Part A until death do you part. From here on out, you will be unable to contribute to your HSA account, making your old triple-tax saving ways a thing of the past. You will, however, be able to withdraw any saved funds.

Fortunately, there’s another option.

OPTION TWO: DELAY PART A ENROLLMENT UNTIL YOU’RE READY TO RETIRE

If you’re working for an employer with more than 20 people, there is no requirement that you enroll in Part A. If you’re eligible for premium-free Part A, you won’t be subject to a Part A late enrollment penalty. That means you can safely delay enrollment in Part A until you’re ready to give up your employer group coverage – and your HSA contributions.

We should point out, though, that you are required to enroll in Part A if you intend to apply for Social Security benefits after age 65. Your own circumstances might also dictate whether you need to enroll in Part B to avoid late enrollment penalties. 

You’ll also need to stop contributing to your HSA at least six months before you do retire. Medicare Part A coverage begins up to six months back from the date you apply. If your Part A coverage overlaps when you made contributions, you may be subject to a tax penalty.

THINK TWICE, ENROLL ONCE

The bottom line: If you are enrolled with a plan with an HSA and your employer has more than 20 employees, you can consider delaying enrollment in Part A. That will allow you to continue contributing to your HSA until you’re ready to retire. When you do retire, make sure you stop your HSA contributions beforehand. Then, you’ll be able to withdraw from the funds you’ve built up while still working.