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HSA vs HRA: Which One Works Better When You’re on Medicare?

by Misty Berryman | Jul 17, 2025 | Medicare medical savings account | 0 comments

A couple reviewing financial documents with a professional advisor, discussing healthcare options such as HSA vs HRA in a modern office setting.

When you transition to Medicare, understanding HSA vs HRA becomes crucial for your healthcare savings strategy.

A couple reviewing financial documents with a professional advisor, discussing healthcare options such as HSA vs HRA in a modern office setting.

Many retirees find themselves confused about what happens to their Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA) once they enroll in Medicare. The answer isn’t straightforward because these accounts work very differently with Medicare coverage.

Key Takeaways

  • HSAs become limited once you enroll in Medicare. You can use existing funds but cannot make new contributions.
  • HRAs remain flexible during Medicare years. They can reimburse Medicare premiums and out-of-pocket costs.
  • Contributing to an HSA after Medicare enrollment triggers tax penalties. These penalties can be costly and apply annually.
  • HRAs are employer-funded accounts. They don’t require employee contributions, making them ideal for retirees.
  • Coordination with Medicare plans requires careful planning. This helps avoid tax issues and maximize benefits.
  • The timing of your Medicare enrollment affects your HSA strategy. It impacts your contribution eligibility permanently.

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What Happens to Your HSA When You Go on Medicare?

Medicare enrollment significantly changes how you can use your HSA vs HRA benefits.

You Can Still Use HSA Funds

The good news is that your existing HSA balance remains available for qualified medical expenses. You can use HSA funds to pay for Medicare premiums, deductibles, copays, and other out-of-pocket costs.

HSA withdrawals for qualified medical expenses remain tax-free, even after you’re on Medicare.

No More HSA Contributions

Once you enroll in any part of Medicare, you can no longer contribute to your HSA. This includes Medicare Part A, which many people receive automatically at age 65.

Even if you’re still working and have access to a high-deductible health plan, Medicare enrollment makes you ineligible for HSA contributions.

Penalty Risks After Medicare Enrollment

Contributing to an HSA after Medicare enrollment triggers a 6% excise tax on the excess contribution. This penalty applies each year the excess contribution remains in your account.

The IRS considers this a serious violation, so it’s important to stop HSA contributions before your Medicare coverage begins.

How HRAs Work with Medicare

HRAs offer more flexibility than HSAs once you’re on Medicare.

Employer-Funded Benefits Continue

Since HRAs are employer-funded, you don’t need to worry about contribution limits or eligibility rules. Your former employer continues to fund the account according to your retiree benefits package.

Many employers specifically design HRAs to work alongside Medicare coverage for retirees.

Reimbursement for Medicare Costs

HRAs can reimburse you for various Medicare-related expenses, including:

  • Medicare supplement insurance premiums
  • Medicare Advantage plan premiums
  • Medicare Part D prescription drug premiums
  • Medicare deductibles and copays
  • Qualified medical expenses not covered by Medicare

The specific reimbursement rules depend on your employer’s HRA plan design.

No Tax Penalties

Unlike HSAs, HRAs don’t create tax penalty risks when you enroll in Medicare. The employer handles all funding decisions, so you don’t need to worry about contribution limits.

Pros and Cons of Each Account Type for Medicare Enrollees

Both accounts offer benefits, but the HSA vs HRA comparison reveals important differences for Medicare coverage.

HSA Advantages for Medicare Enrollees

HSAs provide excellent benefits even after Medicare enrollment. Your existing balance continues to grow tax-free, and you can use the funds for any qualified medical expense.

At age 65, you can withdraw HSA funds for non-medical expenses without the 20% penalty (though you’ll pay regular income tax).

HSA Limitations with Medicare

The biggest limitation is that you cannot make new contributions once you enroll in Medicare. This means you lose the ongoing tax benefits of HSA contributions.

If you’re still working at age 65, you might need to choose between delaying Medicare or losing HSA contribution eligibility.

HRA Advantages for Medicare Enrollees

HRAs work seamlessly with Medicare because they’re employer-controlled. You don’t need to worry about contribution limits or eligibility requirements.

Many employer HRAs are specifically designed to supplement Medicare coverage, making them highly valuable for retirees.

HRA Limitations

The main limitation is that HRAs are employer-controlled. You can’t contribute your own money, and the benefits depend entirely on your employer’s plan design.

Some HRAs have “use it or lose it” provisions, while others allow you to carry balances forward.

How to Coordinate Your Medicare and Supplemental Plan with an HSA or HRA

Proper coordination maximizes your healthcare benefits and helps you understand how HSA vs HRA options work together.

HSA Coordination Strategy

Stop HSA contributions before Medicare enrollment to avoid penalties. Plan your Medicare enrollment timing carefully if you’re still working and want to maximize HSA contributions.

Use your HSA funds strategically to pay for Medicare premiums and out-of-pocket costs. Consider keeping some HSA balance for future healthcare needs.

HRA Coordination Strategy

Work with your benefits administrator to understand how your HRA works with Medicare. Some HRAs require you to submit Medicare Explanation of Benefits (EOB) forms for reimbursement.

Maximize your HRA benefits by understanding which Medicare costs qualify for reimbursement under your specific plan.

Professional Guidance

Consider working with a Medicare advisor who understands both Medicare rules and tax-advantaged healthcare accounts. This coordination can be complex, and professional guidance helps avoid costly mistakes.

Action Steps for Readers: What to Do Now

Take these steps to make the most of your HSA or HRA with Medicare.

If You Have an HSA

Review your current HSA balance and contribution strategy. If you’re approaching Medicare eligibility, plan your contribution timing carefully.

Contact your HSA administrator to understand how to stop contributions when you enroll in Medicare.

If You Have an HRA

Contact your benefits administrator to understand how your HRA works with Medicare. Ask about reimbursement procedures and covered expenses.

Review your HRA balance and any expiration dates or rollover rules.

For Both Accounts

Keep detailed records of all medical expenses and reimbursements. Work with a Medicare advisor to understand how these accounts fit into your overall retirement healthcare strategy.

Consider how these accounts complement your Medicare supplement or Medicare Advantage plan choice.

Get a Free Medicare Advantage Quote

Select whether you would like quotes on Medicare Advantage and MAPD plans, or Part D prescription plans.


Frequently Asked Questions

Can I contribute to an HSA while on Medicare? No, you cannot contribute to an HSA once you enroll in any part of Medicare, including Part A.

Will my HRA pay for Medicare supplement premiums? Many HRAs reimburse Medicare supplement premiums, but this depends on your specific plan design. Check with your benefits administrator.

What happens to my HSA if I don’t use it all? HSA funds never expire and can be used for qualified medical expenses at any time. At age 65, you can also withdraw funds for non-medical purposes without penalty.

Can I have both an HSA and HRA with Medicare? Yes, you can have both accounts, but you cannot contribute to the HSA once you’re on Medicare.

Do HRA reimbursements count as taxable income? No, HRA reimbursements for qualified medical expenses are not taxable income.

Making the Right Choice for Your Medicare Years

The HSA vs HRA decision becomes crucial when you’re planning your Medicare strategy.

While HSAs offer excellent benefits before Medicare, they become limited once you enroll. You can still use existing funds, but you lose the ability to make new contributions.

HRAs provide more flexibility during your Medicare years because they’re employer-funded and designed to work with Medicare coverage. If your employer offers an HRA for retirees, it can be an excellent complement to your Medicare plan.

Understanding HSA vs HRA differences helps you make informed decisions about your retirement healthcare savings. Don’t let confusion about these accounts cost you money or benefits in retirement.

Talk to a Personal Benefits Manager at MediGap Advisor to understand how HSAs and HRAs fit into your Medicare plan. A qualified advisor can help you coordinate these accounts with your Medicare coverage to maximize your healthcare benefits and minimize your costs.

For Further Reading:

  • How to Use Your HSA in Retirement
  • What Can I Use My HSA For? Maximizing Your Benefits in Retirement
misty berryman
Misty Berryman

Misty Berryman is one of your Personal Benefits Managers at Medigap Advisors. She loves working for Medigap Advisors for many reasons, including being part of the solution to one of life’s most important healthcare challenges: choosing the right Medicare plan. Read more about Misty on her Bio page.

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