This bill amends Internal Revenue Code section 223 to let people whose only Medicare coverage is hospital insurance (Medicare Part A) continue to make contributions to health savings accounts (HSAs). It creates a narrow exception to the existing rule that enrollment in Medicare disqualifies a person from HSA contributions.
The change is aimed at older Americans who keep working and delay Medicare Part B; its practical effects fall on employers that sponsor HSA-eligible high-deductible health plans, HSA administrators, and the IRS, which will need to adapt eligibility checks and reporting. The provision is effective for taxable years beginning after December 31, 2024, so it applies prospectively for 2025 and later tax years.
At a Glance
What It Does
The bill adds an exception to IRC §223(b)(7) so that that paragraph — which treats Medicare enrollment as disqualifying for HSA contributions — does not apply when an individual’s only entitlement is Medicare Part A under section 226(a) of the Social Security Act. In short: Part A–only enrollees regain HSA contribution eligibility.
Who It Affects
Directly affects individuals age 65+ who have enrolled in Medicare Part A but have not taken Part B, employers that maintain HDHP/HSA programs and perform eligibility checks, HSA custodians and trustees who process contributions and tax reporting, and the IRS which enforces HSA rules.
Why It Matters
It changes the tax treatment of a defined cohort of seniors, potentially letting working older Americans continue tax-advantaged HSA saving while on employer coverage; that narrows an existing disparity where enrolling in even premium-free Part A previously blocked HSA contributions.
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What This Bill Actually Does
Under current law, anyone enrolled in Medicare is disqualified from contributing to an HSA. The bill carves out a targeted exception: if a person’s only Medicare entitlement is Part A (hospital insurance) — typically premium-free Part A received because of prior payroll-covered employment — that person would be eligible to contribute to an HSA while otherwise meeting the usual HSA qualifications (for example, being covered by a qualifying high-deductible health plan and not having other disqualifying coverage).
Practically, the statute change amends the specific paragraph in IRC §223 that treats Medicare enrollment as disqualifying and says that paragraph does not apply in Part A–only cases. That means employers, insurers, and HSA custodians will need to stop treating enrollment in Part A by itself as an absolute bar.
The bill does not change any other HSA requirements — it does not alter the definition of a high-deductible health plan, catch-up contribution rules, or the prohibition on HSA contributions for months in which a person has other non-HDHP coverage or is otherwise ineligible.Implementation will require clarification. The law currently measures HSA eligibility on a monthly basis and coordinated with an individual’s Medicare enrollment status; the Internal Revenue Service will need to issue guidance explaining how employers and custodians verify “only entitlement” to Part A, how payroll and employer contributions are handled when an individual enrolls in Part B mid-year, and whether and how employer-sponsored retiree coverage or other federal health benefits interact with this exception.Because the effective date applies to taxable years beginning after December 31, 2024, the statute reaches into the 2025 tax year and later.
Employers and HSA administrators that want to apply the change for 2025 will need to update eligibility checks, employee notices, payroll systems, and their contribution-reporting processes (Forms W-2 and 5498-SA), and keep records showing the individual met the Part A–only condition for each contribution month.
The Five Things You Need to Know
The bill amends Internal Revenue Code §223(b)(7) to create an exception allowing HSA contributions by individuals whose only Medicare entitlement is Part A (hospital insurance).
The exception applies only when the person’s entitlement to Medicare consists solely of Part A obtained under section 226(a) of the Social Security Act; any Part B, Part D, or other Medicare coverage remains disqualifying.
The effective date is statutory: the amendment applies to taxable years beginning after December 31, 2024 (i.e.
for 2025 tax-year contributions and later).
The bill does not alter other HSA eligibility rules — individuals must still be covered by an HSA-eligible high-deductible health plan and meet existing monthly eligibility tests.
The change will require employers, HSA custodians, and the IRS to adopt new verification, payroll, and reporting procedures to identify Part A–only months and apply contributions correctly.
Section-by-Section Breakdown
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Short title
Publishes the bill’s short title as the "Stop Penalizing Working Seniors Act." This is a standard organizing provision with no legal effect on tax or Medicare rules; it helps stakeholders and regulators refer to the change in communications and guidance.
Amend IRC §223(b)(7) to exempt Part A–only enrollees
Adds language to §223(b)(7) saying that the paragraph treating Medicare enrollment as disqualifying for HSAs "shall not apply" when an individual’s only entitlement is to hospital insurance under Part A via section 226(a). Mechanically, that targets the longstanding broad prohibition on HSA contributions once an individual is enrolled in Medicare and narrows it to exclude Part A–only cases. For administrators, the key practical effect is that a person with premium-free Part A (but no Part B/D) should no longer be automatically blocked from contributing for otherwise-eligible months.
Effective date tied to taxable year
Specifies that the amendment applies to taxable years beginning after December 31, 2024. That makes the rule prospective to 2025 tax-year contributions and establishes the starting point for employers and custodians to implement eligibility changes and for the IRS to issue transitional guidance.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Working seniors who keep employer coverage and delay Part B — they can continue making tax-deductible or pre-tax HSA contributions while enrolled only in Part A, preserving HSA growth and tax advantages. This reduces the disincentive to stay insured through employer plans after age 65.
- Employers with HDHP/HSA programs — retaining the ability to offer tax-advantaged benefits to older employees supports recruitment and retention of experienced workers and simplifies benefit design for near-retiree populations.
- HSA custodians and financial institutions — increased contribution volumes and larger account balances expand custodial assets and fee bases; they also gain new servicing opportunities to support older accountholders with Medicare interactions.
Who Bears the Cost
- Federal treasury — expanding HSA eligibility increases the universe of tax-preferred contributions and may reduce income tax receipts; the bill contains no offset, so the fiscal effect falls on the budget.
- Employers and payroll administrators — they must update eligibility checks, contribution systems, and benefit communications to account for Part A–only status, imposing compliance and IT costs.
- IRS and plan administrators — the IRS will need to issue interpretive guidance and potentially increase enforcement and audit activity to ensure correct application; HSA trustees face operational costs to implement monthly eligibility tracking and remediations when errors occur.
Key Issues
The Core Tension
The central tension is between two legitimate goals: preventing older Americans from losing wage-related tax benefits when they keep working versus preserving the integrity and fiscal limits of a targeted tax-preferred account. Allowing Part A–only enrollees back into HSAs removes a disincentive to stay employed and buys fairness for near-retiree workers, but it also enlarges a tax expenditure, creates opportunities for gaming enrollment timing, and requires administrative mechanisms to verify eligibility that the bill does not provide.
The text is narrowly drafted but leaves several implementation questions unresolved. The statute ties the exception to “entitlement… pursuant to an enrollment under section 226(a),” which raises verification questions: how should an employer or HSA custodian prove an individual’s entitlement is limited to Part A?
Medicare entitlement records, self-attestation, or employer attestation are all possible approaches, but the bill does not specify a verification standard or acceptable documentation. That gap means IRS guidance will be essential to prevent inconsistent application and potential improper contributions.
The bill also does not address interactions with other federal or private coverage that can disqualify HSA contributions (for example, employer-provided retiree coverage, TRICARE, VA health benefits, or short-term limited-duration insurance). Nor does it resolve how mid-year changes will be treated — if an individual enrolls in Part B partway through the calendar year, the existing monthly eligibility framework will govern, but the bill gives no drafting on employer contributions, refunds, or corrective reporting.
Finally, there is an unresolved policy trade-off: widening eligibility preserves tax benefits for a definable group of workers but expands a tax preference that can be costly and potentially subject to strategic behavior (delaying Part B enrollment to continue HSA contributions). The bill leaves those fiscal and behavioral effects unquantified and unchecked.
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