Preparing for 2025: Creditable Coverage, Enrolling in Medicare and HSA Contributions

With significant changes coming in 2025 to creditable coverage determinations, employers and employees may have questions on what that means for them, whether they make the decision to enroll in Medicare Part D or continue to have coverage under their group health plan.

Some employees who have been forgoing Medicare enrollment may have done so to continue contributing to an HSA. However, once an employee chooses to enroll in Medicare, the enrollment may be retroactive for up to six months. This means that employees and employers need to consider how to deal with improper HSA contributions as soon as possible when an employee enrolls in Medicare.

In terms of what will constitute creditable coverage for 2025, employers should check with their carriers and TPAs to make sure the carrier will provide the creditability determination at or before open enrollment for calendar year plans.

If an employee is Medicare-eligible and changes from creditable coverage to non-creditable coverage, the loss will create a Medicare special enrollment right for the employee to enroll in Medicare. Once a person is Medicare eligible and changes from creditable to non-creditable coverage without enrolling in Medicare Part D, the employee starts accumulating potential penalties of 1% for each month of non-creditable coverage. If an employee has been Medicare eligible and has had non-creditable coverage and continues to delay Medicare enrollment, the employee has been and will continue to accumulate potential penalties for delaying enrollment in Medicare.

When a person enrolls in Medicare, enrollment may be retroactive up to six months. IRS guidance is clear that an individual enrolled in Medicare cannot contribute to an HSA, even during a period of retroactive Medicare coverage. If an employee is anticipating enrolling in Medicare, the employee should stop HSA contributions and should tell the employer to stop any employer-sponsored HSA contributions. If an employee enrolls in Medicare due to a loss of creditable coverage, and the enrollment is retroactive, the employer can claw back HSA contributions made by both the employer and employee over the last six months. If the plan year has ended, the employer will need to correct any incorrect W-2s, and the employee will need to make sure the correct W-2 is received for the applicable year’s tax return.

For more information, please reach out to your Alera Group consultant.