HSAs and Medicare

A while back, I was asked about the rules on contributing to a Health Savings Account (HSA) and how they relate to Medicare.  The general rule is that an individual cannot contribute to an HSA if he or she is enrolled in Medicare.  The question came up about people who are eligible for Medicare but have opted out of both Part A and Part B.  After some research, I found that the IRS at one point answered this question in IRS Notice 2004-50, in Internal Revenue Bulletin 2004-33.  The IRS stated that an individual otherwise eligible to contribute to an HSA who is eligible for Medicare, but not enrolled in Part A or Part B may contribute to the HSA.  See http://www.irs.gov/irb/2004-33_IRB/ar08.html for the entire Notice.  However, once an individual attains age 65, applies for, and begins receiving Social Security benefits, they are automatically enrolled in Medicare.  A federal appellate court in 2011 ruled in Hall v. Sebelius that individuals receiving Social Security benefits cannot opt out of Medicare Part A.  This means individuals have to make a decision: receive Social Security benefits or remain eligible to contribute to an HSA.  For now, under the law, you can't do both. 

For the full decision in Hall v. Sebelius, see http://www.cadc.uscourts.gov/internet/opinions.nsf/890596479218E0818525799D00548389/$file/11-5076-1356903.pdf