New Bill Would Let Seniors Save for Medical Care Tax-Free

Advertising Disclosure: When you buy something by clicking links on our site, we may earn a small commission, but it never affects the products or services we recommend.

Senior man with his doctor
Rob Marmion /

A bipartisan bill in Congress would allow seniors to save for health care expenses tax-free throughout retirement.

Earlier this month, Rep. Ami Bera (D-Calif.) — who is also a medical doctor — and Jason Smith (R-Mo.) reintroduced H.R. 3796, the Health Savings for Seniors Act. The legislation would allow seniors with Medicare to save money in health savings accounts, or HSAs.

As it stands today, seniors with Medicare can use their existing HSA funds to pay for health care costs, but cannot make new contributions to an HSA or start a new HSA if they do not already have an existing account.

In a press release, Bera says:

“HSAs would particularly help seniors pay for services such as dental and vision care that is currently not covered under Medicare, leading to a healthier and happier life, and a more dignified retirement.”

Smith says today’s surging inflation makes it even more important to give seniors added flexibility in how to pay for out-of-pocket health care expenses.

How HSAs can save you money on medical costs

As we have stated many times, health savings accounts offer one of the best tax breaks in the entire tax code:

“With an HSA, though, you get a tax deduction for the money you put into the account. Then, the earnings grow tax-free. And, as long as you use it for qualified health care expenses, you don’t pay taxes on the money you withdraw from the account. It’s truly tax-free.”

This means that if the Health Savings for Seniors Act became federal law, seniors would be able to save money by avoiding federal income taxes on money they set aside for health care expenses.

For seniors who pay a federal income tax rate of 12%, for example, that essentially equates to saving up to 12% on every medical cost they pay for with funds from their HSA.

For more on the advantages of HSAs, check out “3 Ways a Health Savings Account Can Improve Your Finances.”

Downsides of the new bill

The Health Savings for Seniors Act is not all good news for seniors. It has two noteworthy drawbacks.

The bill would:

  • Exclude Medicare premiums as a qualified medical expense. This would mean seniors with HSAs no longer could use funds from their HSA to pay for Medicare premiums.
  • Repeal the exception that currently allows seniors to avoid the penalty for using HSA funds on things other than qualified medical expenses. This means seniors who spend HSA funds on non-medical costs would owe a penalty.

What happens next?

Although the Health Savings for Seniors Act has bipartisan support, its enactment is far from a sure thing. It would need to pass the House and Senate before it even gets to President Joe Biden’s desk. And Biden would have to sign the bill to make it law.

It is worth noting that this bill also was introduced in 2019 and failed to become law — or even be voted on — during that congressional session.

To let your members of Congress know how you feel about the legislation, contact them.

If you are not enrolled in Medicare and have a high-deductible health insurance plan, you might be eligible to contribute to a health savings account today.

For more, check out “Am I Eligible for a Health Savings Account?

Get smarter with your money!

Want the best money-news and tips to help you make more and spend less? Then sign up for the free Money Talks Newsletter to receive daily updates of personal finance news and advice, delivered straight to your inbox. Sign up for our free newsletter today.