While Washington pundits and policy makers have focused on tax relief provisions in the “big, beautiful” reconciliation package currently being debated in Congress, there’s another reform making its way through the Senate that could have a major impact on working seniors, according to ABA’s Kevin McKechnie in a recent article for Real Clear Markets.
McKechnie says the reform fixes a little-known but longstanding flaw in federal tax law that has penalized low-income retirees who stay in the workforce: the automatic link between Social Security and Medicare Part A, which blocks seniors from contributing to health savings accounts.
According to McKechnie, an ABA SVP and executive director of the association’s Health Savings Account Council, once someone claims Social Security, they are automatically enrolled in Medicare Part A, the part of Medicare that covers seniors’ inpatient hospital care. Section 223 of the Internal Revenue Code prohibits Medicare enrollees from contributing to HSAs or receiving employer HSA contributions. There’s no opt-out. “That means older Americans who need Social Security to make ends meet are cut off from an important savings vehicle used to manage out-of-pocket healthcare costs,” he wrote.
The House version of the tax package included a provision to restore HSA eligibility for working seniors enrolled in Medicare Part A. Early Senate drafts left it out, but after strong advocacy from consumer groups and healthcare stakeholders across the aisle, the fix was reinserted into the current Senate package. (ABA’s HSA Council sent a letter to Senate leadership thanking them for including a health savings account expansion provision in the bill.)
“It’s a commonsense reform with broad benefits,” McKechnie wrote. “It strengthens individual savings, supports employer-sponsored coverage, reduces pressure on federal healthcare programs, and removes an arbitrary penalty on low-income seniors who work. With nearly one in five Americans over age 65 still in the workforce, it’s a long-overdue update to reflect modern retirement realities.”
