Fifteen Employees, Two HSAs, and a 65th Birthday in August
Delia, 64, runs HR at a Boise manufacturer with 15 full-time employees; there are no affiliated employers. The group plan is a qualifying high-deductible health plan with an HSA; Delia contributes the family maximum plus the catch-up and the employer adds $1,000. Delia turns 65 in August and has not filed for Medicare. Her husband, 67, retired two years ago, enrolled in Medicare Parts A and B at 65, and has continued contributing $1,200 a year to his own HSA while covered as Delia's dependent on the group plan. During October open enrollment Delia asks whether she can simply keep the group plan, skip Medicare because she is 'still working,' and keep funding both HSAs.
1. When should Delia enroll in Medicare, and after she turns 65 who pays first?
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Enroll in Parts A and B during her initial enrollment period. Medicare is primary, not secondary.
- The 'working aged' rule that lets an active employee delay Part B without penalty while covered by an employer plan applies only where the employer has 20 or more employees. This firm has 15, so Medicare pays first and the group plan pays second.
- Her initial enrollment period is the 7-month window: the 3 months before her birthday month, her birthday month, and the 3 months after.
- Cost of waiting: a permanent Part B late-enrollment penalty of 10% of the standard premium for each full 12 months she was eligible and not enrolled, plus a Part D penalty of 1% of the national base beneficiary premium per month. She would also have to wait for the general enrollment period (January 1–March 31, coverage effective July 1).
- Part A is premium-free with 40 quarters of work history.
- Part D: enroll during the same window, or confirm in writing that the group plan's drug coverage is creditable.
- The group plan: because it is secondary, she can keep it as a wraparound that may pick up some Medicare cost-sharing, or drop it - but not before confirming her physicians are in Medicare networks and making the Medigap or Medicare Advantage decision. Her six-month Medigap open enrollment begins the month she is 65 and enrolled in Part B; after that, underwriters can decline her.
2. How much can each spouse contribute to an HSA this year, and how are the past contributions fixed?
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Delia: prorated, and the employer's $1,000 counts against the limit. Her husband: he cannot contribute at all, and his past contributions are excess.
Delia
- HSA eligibility requires qualifying HDHP coverage and no Medicare entitlement. Her Part A is effective the first day of her birthday month (August 1), so she is eligible only January through July - 7 months.
- Because she enrolls during her initial enrollment period, there is no six-month retroactive Part A start; that retroactivity only affects people who enroll later.
- Prorated limit: 7/12 of (family limit + $1,000 catch-up). Using 2025 figures, 7/12 × ($8,550 + $1,000) ≈ $5,570 for the year - and that figure includes all contributions, hers plus the employer's $1,000. So her own deposits should total about $4,570.
- The last-month rule is unavailable: it requires her to stay eligible for the entire following 13 months, and Medicare ends that in August.
Husband
- Entitlement to Medicare disqualifies a person from HSA contributions, full stop - regardless of being covered under Delia's HDHP. He has been ineligible since his Part A/B took effect at 65, so his $1,200 per year are excess contributions, subject to a 6% excise tax for each year they remain in the account (Form 5329).
- Fix: stop immediately, then remove the excess plus attributable earnings by the tax-filing deadline for the affected year (or the extended due date). He can still spend the remaining HSA dollars tax-free on qualified medical expenses; he simply cannot add to them.
Both: had Delia waited past her initial enrollment period and enrolled in Part A later, the six-month retroactive effective date would have retroactively invalidated HSA contributions made during those months as well.
3. What are the risks if Delia declines Medicare and stays on the group plan?
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Declining is the expensive option, and 'I am still working' is not an exception at a 15-employee firm.
- Because the plan is secondary, claims processed without Medicare will either be denied for lack of a primary payer or paid as secondary with cost-sharing Medicare would have covered. Delia - not the plan - absorbs the gap, and the gap can be large on a high-deductible plan.
- She loses HSA eligibility anyway on her Part A effective date, so there is no HSA advantage to delaying. Waiting buys nothing and costs the Part B penalty permanently.
- The 20-employee test looks at the whole controlled group, not one location. If the owner has a second entity with employees, the analysis flips and must be verified - but on these facts, it is 15.
- If she reverses course later, she enrolls during the general enrollment period with coverage starting July 1, leaving months with no primary coverage in between.
- IRMAA: if her MAGI exceeds the threshold ($106,000 single / $212,000 joint for 2025, measured on the return from two years earlier), her Part B and D premiums are surcharged - worth projecting before she retires.
- For her husband: he is already on Medicare and secondary under the group plan. Confirm his Part D creditable coverage and evaluate whether he would be better served dropping the group coverage for a Medigap or Medicare Advantage plan.