As most of us know, an individual who is enrolled in Medicare Part A or B is ineligible to contribute to a health savings account. For that reason, insurance agents often advise their clients to postpone their enrollment in Medicare until they retire and drop their group health coverage.
With Medicare Part B, this is no big deal. When an individual delays enrollment in Part B because she’s covered by an employer’s group plan, she has an eight-month “special enrollment period” during which she can sign up after losing her group coverage.
With Medicare Part A, though, it’s not so simple. A little-known rule in the Social Security Administration’s "Program Operations Manual System," an SSA handbook designed for internal use by SSA employees in processing claims, says that anyone who opts out of Medicare Part A also forfeits all past and future Social Security retirement benefits. This means that seniors would stop receiving their Social Security check and would be required to repay any benefits received prior to disenrolling from Part A.
And, based on a recent court ruling, it doesn’t look like this rule will be changing anytime soon. On March 21, Federal District Court Judge Rosemary Collyer dismissed a two-and-a-half year lawsuit that sought to allow people receiving Social Security benefits to opt out of Medicare Part A. The lawsuit, known as Hall v. Sebelius, was originally filed October 9, 2008 and argues that the two government programs are voluntary and that the application for each of these programs is not dependent on the application for the other. The judge disagreed.
In dismissing the case, Judge Collyer said that “Requiring a mechanism for Plaintiffs and others in their situation to ‘disenroll’ would be contrary to congressional intent, which was to provide ‘mandatory’ benefits under Medicare Part A for those receiving Social Security Retirement benefits.”
Collyer concluded that the “Plaintiffs are trapped in a government program intended for their benefit. They disagree and wish to escape. The Court can find no loophole or requirement that the Secretary provide such a pathway.”
So, until something changes, you may want to advise your clients NOT to opt out of Medicare Part A. True, it will make them ineligible to contribute to an HSA, but the tax benefits of an HSA probably aren’t worth risking your Social Security check.