HSA/Medicare issue

[JJStephens]

Client turned 65 last year but is still working so she declined Medicare coverage. Since she was not covered by Medicare, she continued contributing to her HSA throughout 2012.

On March 1, 2013 she chose to register for Medicare. At that time she was informed that her Medicare coverage was placed in force retroactively for 6 months (no option to decline the 6 month retro provision). (That was a new one for me: if a person does not enroll in Medicare at full retirement age, subsequent enrollment is back-dated to the full retirement age date or 6 months, whichever is less. That is a real 'gotcha' for folks making HSA contributions after they reach full retirement age--they need to stop making those contributions 6 months before they register with Medicare).

Problem is, my client did make several HSA contributions after the retroactive effective date (Sept 1, 2012).

So as to avoid an excess contributions penalty, I advised her to contact the HSA plan administrator before April 15 and request a refund of the excess contributions as well as the earnings on those contributions (and told her the earnings withdrawal would be taxable on her 2013 return).

When she called the plan administrator (a large regional bank) they told her they don't do excess contribution/earnings refunds and suggested she just write herself a check on her HSA account for the excess amount and to estimate what she thinks the excess earnings would be (based on a rate of 0.5% APR). The bank CSR confirmed with her supervisor that was the bank's policy and refused to do anything else.

I suggested she call the bank again and speak with an attorney or other senior manager in the HSA dept. She tried but was told (by a different CSR) that none were available and that the advice they previously gave her was their policy and would not be reconsidered. I told her to document the entire dialogue (names/dates/details) and to ask the bank for written confirmation that they would code her check as an excess contribution withdrawal (rather than as a standard withdrawal) and would report it as such.

Apart from firing the bank, any additional ideas how to proceed?