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Medicare benefits. The answer can be complicated.

Medicare eligibility and Medicare secondary payer rules:  If an employee enrolls in Medicare and the organization has 20 or more employees, the organization’s plan is the primary payer. It pays first and Medicare pays second. When the plan is primary payer, there is minimal coordination of coverage between the plan and Medicare. For this reason, employees should consider remaining covered under the employer plan over Medicare. However, if an organization has fewer than 20 employees, Medicare will be primary payer. If the employee chooses to waive enrollment in Medicare and remain enrolled in the group health plan, the insurance carrier will process claims taking Medicare into account, exposing employees to very high out-of-pocket expenses. This means most employees aged 65 or older working for employers with less than 20 employees, should consider enrolling in Medicare over the employer plan. However, if employees choose to enroll in both Medicare and the HDHP, they are no longer eligible to contribute to an HSA or receive contributions, as enrollment in Medicare disqualifies employees from contributing to HSAs.  

What receiving Social Security benefits means to HSA holders. Workers receiving Social Security benefits are automatically enrolled in Medicare Part A if they have contributed 40 quarters into Medicare. When they choose to receive Social Security benefits six months past the full retirement age of 66, Social Security gives six months of benefits in “back pay.” As enrollment in Medicare Part A is associated with Social Security benefit payments, the employee will be enrolled in Medicare Part A retroactively, six months before the request to receive Social Security benefits. The retroactive enrollment in Medicare Part A disqualifies employees from contributing to or receiving contributions to an HSA, and subjects them to six months of tax penalties. To avoid penalties, older workers should be advised to stop contributing to their HSA account six months before applying for their Social Security benefits.   

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