Dr. Olveen Carrasquillo (L), Chief of General Internal Medicine University of Miami, sits with Juan Gonzalez as he conduct...

Why health savings accounts and Medicare don’t mix

Editor’s Note: Journalist Philip Moeller, who writes widely on health and retirement, is here to provide the Medicare answers you need in “Ask Phil, the Medicare Maven.” Send your questions to Phil.

Candace – Iowa: My husband is 66 and works full-time. We have our health insurance through his employer, and he has Medicare Part A as a secondary payer. Can he legally contribute to the health savings account offered by his employer since I am on his plan and won’t get Medicare until July 2016 when I retire at age 65?

Phil Moeller: The short answer is that continued participation in an health savings account will not be possible for your husband, or indeed, for you as well. I get so many questions about this situation that I hope an expanded explanation will address not only your question but those of other readers as well.

These accounts are increasingly popular, in part because they are funded with a person’s own pre-tax dollars and often include employer contributions as well. Account balances can be invested in mutual funds, similar to a 401(k) retirement account. But while proceeds from 401(k) accounts usually are taxable income, any funds from a health savings account that are spent on qualified medical expenses are not taxed. Further, account balances may roll over from year to year. There is no time limit for spending them and no required minimum distribution, as is the case with 401(k)s. Weighed against these benefits, however, it appears that many people with health savings accounts forego health care. They’re on the hook for their own medical expenses until they’ve met their plan’s annual deductible and either can’t afford to spend the money or would rather not. I understand why this can happen, but it really defeats the purposes of having health insurance in the first place.

As for the rules governing who can participate in a health savings account, a person receiving Medicare can no longer contribute to a health savings account. In fact, and this is one that only a regulator can love, a person is supposed to stop tax-deductible contributions six months before they take Medicare! How many folks do you think have a clue about this requirement, or would be able to comply with it even if they did? We’re talking about a very small number. Moving on, Candice, if your husband is collecting his Social Security benefits, he has no choice but to take Part A and thus can no longer contribute to the health savings account. If he is not taking Social Security, however, he need not take Part A at this time. However, even if he was disqualified from participating in a health savings account, this does not invalidate your right to have a health savings account. While many couples probably don’t know this, there is no such thing as a joint health savings account. Each spouse can have a separate health savings account. Normally, you would be able to contribute up to the annual family maximum for 2016. Under a family plan, either spouse can contribute up to the annual maximum (minus whatever the employer chips in). The only difference is that each health savings account participant age 55 or older can make an annual $1,000 “catch-up” contribution to the plan. If your husband is no longer eligible, he cannot make such a contribution.

However, you said above that you plan to retire next July and take Medicare. Because of the six-month rule mentioned above, you really can’t make HSA contributions in 2016 either. However, if your husband continues active employment next year, then you can continue to be covered under his health plan, and you do not have to begin taking Medicare just because you turn 65. Assuming you are not going to begin Social Security benefits, you would be able to continue participating in your husband’s employer’s health savings account plan and can make tax-deductible contributions.

Is this stuff fun or what!

Rick – Vt.: One of my drugs, eszopicolone, is not covered on my plan or any other plan for 2016. I had them send the complete formulary for 2016, which said it is covered. This was dated Oct. 1, 2015. But as of today, the web listing on Medicare.gov says it is not covered. Can the company decide to not cover the drug before or after Jan. 1?

Phil Moeller: Unfortunately, it can. Medicare drug plans have many grounds for changing their formularies on short notice. Perhaps a cheaper generic version of the drug becomes available. Or the drug’s maker raises its price, causing the plan to favor a cheaper alternative. Or supplies of a drug are in short supply. Pick your poison. And while the formulary may have been dated Oct. 1, odds are it was filed with Medicare last spring.

However, you have the right to appeal this change. Should your prescribing physician attest to the clinical need for you to continue taking this particular drug, the plan may have to cover it, even if it’s been removed from its formulary. Further, plans just can’t cut you off cold turkey. They are supposed to provide you at least a 60-day supply of any drug that has been removed from the plan. Eszopicolone is the generic name for Lunesta, the sleeping aid medication that went generic in the spring of 2014. It can sometimes take time for drug plans to formally replace branded drugs with cheaper generics. It wasn’t clear from your question whether you have been taking Lunesta or its generic equivalent. Given the popularity of this drug, I’d be surprised if it’s not available in generic form. I checked for it on Medicare’s Plan Finder, and it popped right up.

Ken – N.Y.: I am about to sign up for a Medigap plan for my wife and myself. We have been covered by my workplace plan for many years and will become part of Medicare Part B on Jan. 1, 2016. We are both 68 years old and in good health. I had anticipated signing up for Plan F, but am being advised that Plan N may be a better option and that I may want to consider high-deductible Plan F as well. We can afford the premiums of whatever choice we make. Is there a clear correct choice now and for the future? Are there any downsides I need to consider?

Phil Moeller: Plan F will provide the most complete coverage, so if money is not an obstacle, that would be a safe choice. Trying to do a cost-benefit analysis of Medigap plans is tough. Absent specific health issues that only you know, I’d lean toward the assumption that you and your wife will face serious health issues in your later lives and thus should have the most insurance protection you can afford. If you haven’t already done this, check out Medicare’s helpful Medigap guide, particularly the table on page 11 that compares the different letter plans.


Which Medigap plan should you get?

One last point: While many couples make the same Medicare decisions, you can’t really sign your wife up for a Medigap plan. Medicare does not allow family coverages — each spouse must have their own plans. While it may be convenient to only have one type of Medigap or Medicare Advantage or Part D prescription drug plan to worry about, it also can make sense for two spouses to have different Medicare coverage packages, depending on their ages, health conditions and other personal factors.

Multiple readers – Everywhere, USA: I receive a steady drumbeat of questions from military families about TRICARE, which covers nearly 9.5 million active and retired service members and their families. With the help of folks at TRICARE, here is a basic description of how it works and of where to find additional information.

Phil Moeller: First off, TRICARE morphs into TRICARE for Life for retirees. At this point, people need to have Medicare Parts A and B. TRICARE’s rules require it to send out alert postcards before TRICARE members turn 65, but of course these things do get lost in the mail. TRICARE members can get Medicare enrollment details and help at milConnect. TRICARE members also need to be registered with the Defense Enrollment Eligibility Reporting System (DEERS). As all readers of Ask Phil know, navigating Medicare’s various enrollment periods can challenge even the most proficient military obstacle course champion. There are penalties for late enrollment, but the biggest penalty may be unintentionally going without primary health insurance protection.

Getting Medicare and switching to TRICARE for Life means that Medicare then becomes the primary payer and TRICARE is secondary. Military folks often have second careers after leaving the service and may have another retiree health program besides TRICARE for Life. In this case, TRICARE for Life usually moves into the third-payer slot. Claims would flow to Medicare with unpaid amounts then flowing to the secondary insurer for payment. If a TRICARE for Life member then gets a request for payment, he or she can file a claim with the company that processes TRICARE for Life payments: Wisconsin Physicians Service – Military and Veterans Health (1-866-773-0404).

TRICARE for Life tends to have comparable, and usually cheaper, drug coverage than a Medicare Part D drug plan. As a secondary payer, it also usually provides coverage that is comparable to a Medigap policy. If anyone says a TRICARE for Life beneficiary needs either of these additional policies, I’d be initially skeptical. Look at the coverage terms of your policy, or get help from TRICARE or Wisconsin Physicans Service. You also can find free Medicare counseling help at the State Health Insurance Assistance Program (SHIP). However, TRICARE for Life users on very limited incomes might do better on a Part D plan because they could qualify for financial assistance from Medicare in paying for their Part D drugs and even for plan premiums and other expenses.