What Is a Medicare Advantage MSA Plan?
A Medicare Medical Savings Account (MSA) is a type of Medicare Advantage Plan but operates slightly differently. They combine a high-deductible health plan (HDHP) with a health savings account (HSA) that helps plan members pay for healthcare.
Funds from insurance providers are deposited into an MSA, which can be used for services covered by traditional Medicare. Funds in the MSA can also be used for additional services such as dental and vision care, hearing aids, and home health equipment. Any unused funds in the MSA can remain there until they are needed or until age 70.5, when the account must be closed.
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How Does a Medicare Medical Savings Account (MSA) Work?
Medicare MSAs feature two elements: an HDHP that’s required to cover the same services as traditional Medicare and an HSA that plan members can use to pay for healthcare expenses they would otherwise have to pay for out-of-pocket. Keep reading for details about how these elements work and who’s eligible.
Compared to other Medicare Advantage Plans, the eligibility criteria for MSA Plans are relatively strict. In addition to the general requirements for enrolling in Medicare Advantage, specific exclusions apply to MSAs.
People with Medicare can choose to enroll in Medicare Advantage if they meet all of these requirements:
- They are enrolled in both Medicare Part A and Part B
- They are a U.S. citizen or lawfully present immigrant
- They live within a Medicare Advantage plan’s service area
However, additional requirements apply to MSA plans. Members are required to live in the United States for at least 183 days per year. Applicants are not eligible if they’re covered by (or eligible for) other health benefits programs, including Medicaid, TRICARE, VA healthcare, and retiree plans.
Original Medicare beneficiaries eligible to switch to Medicare Advantage or a Medicare Medical Savings Account can do so during the Open Enrollment Period, which runs from Oct. 15 to Dec. 7 each year.
Savings Account Component
Medicare MSA Plans feature an HSA to help members pay for routine healthcare costs. Some of the most popular ways to use an HSA include:
• Doctor’s visits and hospital stays
• Prescription medications
• Lab tests and X-rays
• Vision care, including glasses and contact lenses
• Alternative treatments such as acupuncture
The plan deposits a certain amount of money, such as $1,500 or $3,000, into the account each year. Plan members can spend their Medicare dollars on health services or let the money accumulate over time.
The Medicare Savings Account is held in a bank the plan chooses, and the bank’s policies determine how members access the money. Generally, banks provide a debit or credit card connected to the Medical Savings Account. Medicare beneficiaries present this card when they pay for medical services.
Like regular savings accounts, Medicare Savings Accounts can earn interest. Any funds remaining at the end of the year roll over to the following year, and a new deposit is added. This allows members to save up for future health needs. However, plan members cannot add their own money to their MSA.
What Happens If You Use All Your Funds?
If a plan member depletes their MSA funds, they’re responsible for their own medical expenses until they reach the plan’s deductible. At that point, the plan starts paying for Medicare-covered services. New funds are added to the savings account at the beginning of the next calendar year.
High-Deductible Health Plan Component
In addition to the savings account, Medicare MSA plans feature a high-deductible health plan. These plans are required to offer coverage for the same services as Original Medicare (Part A and Part B). Members pay out of pocket for Medicare-covered services until they reach the plan’s deductible.
Deductibles vary from plan to plan, but insurers are required to follow the rules set by Medicare. For the 2023 plan year, the maximum deductible for an MSA Plan is $15,750. That means members may spend as much as $15,750 on Medicare-covered services before their plan starts covering costs.
What Do MSAs Cover?
With their Medical Savings Account, Medicare members can pay for routine Medicare-covered services they would otherwise pay for out-of-pocket. They also have the flexibility to spend their funds on health services not covered by Original Medicare, such as dental care.
These funds can even be used for non-medical necessities like rent or groceries. However, withdrawals not going toward Qualified Medical Expenses are taxed as income, with an additional 50% tax penalty.
What Are Qualified Medical Expenses?
Qualified Medical Expenses are health services and products that could be deducted on a tax return. They include both Medicare Services that would be covered by parts A and B in addition to services not covered by Medicare.
Some examples of Qualified Medical Expenses that are also Medicare-covered services are X-rays, hospital services, and ambulance services. Spending MSA funds on these services counts toward the plan deductible.
Some Qualified Medical Expenses are not covered by Medicare, such as dentures, hearing aids, and long-term nursing home care. Plan members can use their MSA funds for these services without tax penalties, but the expenses do not count toward the deductible.
In-Network and Out-of-Network Coverage
Unlike other Medicare Advantage Plans, Medicare MSA Plans do not generally have a network. This means members are not limited to a list of healthcare providers and facilities in a particular service area.
Instead, these no-network plans work like Original Medicare. Members can spend money from their MSA with any Medicare-participating provider nationwide. This appeals to people who travel frequently and want to access care wherever they are in the U.S.
Combining MSAs With Part D
Medicare MSA Plans do not include Medicare prescription drug coverage (Part D). This part of Medicare covers self-administered drugs, such as those consumers get from a pharmacy. MSA Plan members who want this coverage can enroll in a separate Part D plan.
People with MSA Plans can use their savings account funds to pay for their share of the cost of Part D-covered drugs. However, these copayments do not count toward the MSA Plan’s deductible.
Combining MSAs With Medigap
Medicare Supplement Plans (Medigap) are supplemental plans that help cover out-of-pocket costs in Original Medicare, such as deductibles and copayments. They cannot be combined with Medicare Advantage Plans, including Medicare MSA Plans.
It’s illegal for companies to sell new Medigap plans to people in a Medicare MSA Plan. However, people who already have Medigap before enrolling in a Medicare MSA Plan are allowed to keep their policy. This policy doesn’t help cover the Medicare MSA Plan’s deductible.
Some Medigap policies sold before 2006 include Medicare Part D drug coverage. People enrolled in Medicare MSA Plans can continue using these older Medigap plans to pay for their prescription drugs.
The Costs of a Medicare MSA
Enrollees do not pay a monthly premium for Medicare MSA Plans. However, that doesn’t mean these plans have no cost. Plan members remain responsible for their Part B premiums and the plan’s deductible, which can be as high as $15,750.
For example, consider a Medicare MSA Plan that deposits $3,000 in funds each year and has an $8,000 annual deductible. If a plan member has $20,000 in Medicare-covered health expenses during the year, they spend $3,000 from their Medicare saving account and $5,000 from their own funds to reach the deductible. Then, the plan pays the full cost of covered services until the end of the year.
On the other hand, if a plan member only has $1,000 in medical expenses during the year, the funds in the MSA fully cover their care. The remaining $2,000 rolls over to the following year.
Why Consider a Medicare MSA? Comparing Your Medicare Options
There are some key differences between Medicare MSA Plans and other Medicare options.
Medicare MSA Original Medicare Medicare Advantage
Works with Part D
Works with Medigap
No with exceptions
Yes with exceptions
Varies, maximum annual deductible is $15,750
Part A: $1,600 per benefit period Part B: $226 per year
Works With Other Health Insurance
$0 supplemental premium
Part A: $0 for most enrollees Part B: $164.90
Annual Out-of-Pocket Maximum
Varies by plan
Varies by plan
36 states and Washington, D.C.
Original Medicare, Medicare Advantage, and Medicare MSAs
Original Medicare, standard Medicare Advantage Plans, and Medicare MSA Plans have key differences for shoppers to consider when weighing their coverage options. As outlined in the above table, these differences include costs, compatibility with other types of coverage, and availability.
Unlike other Medicare Advantage Plans, Medicare MSAs do not charge monthly premiums beyond enrollees’ Part A and B premiums. However, with their high annual deductibles, enrollees with health issues may face higher out-of-pocket costs with MSAs.
More than half (57.4%) of older Americans have health coverage from sources other than Medicare, such as employer plans, military coverage, or Medicaid. People with other health benefits are not eligible for Medicare MSA Plans. However, Original Medicare and Medicare Advantage can work in tandem with other health insurance.
Plan availability is another crucial difference between these Medicare options. Original Medicare is available nationwide, and Medicare Advantage Plans are for sale in most counties. As of February 2023, Medicare MSA Plans are available in 36 states, plus Washington, D.C.
Which Should You Get?
To choose the right Medicare option for your needs, consider your existing health benefits, network preferences, your annual budget for healthcare spending, and the types of plans available in your area.
Like other high-deductible plans, Medicare MSAs could be a good choice for healthy people who do not expect to see a doctor often but want some coverage in place in case of an unforeseen medical emergency.
Benefits of a Medicare Savings Account
There are many potential benefits of a Medical Savings Account. Medicare beneficiaries who choose this option can look forward to the following:
- Receiving a lump sum of money for medical spending each year
- The flexibility to pay for non-Medicare-covered services
- Choosing their own doctors with no network restrictions
- Rolling over unused funds to the next year for future health needs
- An annual cap on spending for Medicare-covered services
Drawbacks of a Medicare Savings Account
Like any health insurance, there are also disadvantages to Medicare Medical Savings Accounts. Potential enrollees should be aware that:
- Plans may not cover preventive care before the deductible is met.
- There’s a potential for high out-of-pocket costs if you must frequently pay for medical costs.
- Tax penalties apply if MSA funds are spent on non-qualified expenses.
- People who have MSAs have additional tax filing requirements.
- MSA plans are not available in all areas.
How to Enroll in an MSA Plan
Enrolling in an MSA Plan is relatively straightforward. After shopping for MSA Plans available in your area and comparing your options, make a selection. Contact the insurer that sells your chosen plan to start the application process. Read on for details about how this process works.
1. Find and Compare Available MSA Plans in Your Area
Medicare MSA Plans are not available in all areas. To determine if insurers are selling plans in your area, visit the Medicare Plan Finder at Medicare.gov.
To get started, enter your ZIP code and select Medicare Advantage Plan as the plan type. This brings up a list of the Medicare Advantage Plans available in your area. You can filter plans by the type of Medicare health plan, so choose MSA (Medical Savings Account).
The Plan Finder has a built-in comparison tool that lets shoppers easily compare selected MSA plans side-by-side. When comparing your options, pay attention to the annual deductible, yearly deposit from the plan, and list of covered services.
2. Select Your Preferred Plan and Apply
After selecting a Medicare Saving Account, contact the plan directly for details about how to apply. Insurance companies may accept applications through their websites, mail, or phone.
Be prepared to provide the information that appears on your Medicare card: Your Medicare number and the dates your Medicare Part A and Part B coverage started. Insurers also ask for applicants’ Social Security Numbers (SSNs) to set up savings accounts.
If your application is denied, which could happen if you have other health benefits or do not plan to live in the U.S. for at least 183 days, consider applying for a standard Medicare Advantage Plan instead.
3. Open an Approved Savings Account
Insurers provide instructions on how to set up your Medicare Savings Account. Initially, this savings account is held at a bank of the insurer’s choice. If, for whatever reason, this bank doesn’t meet your needs, it’s possible to move the money to another bank later.
4. Receive Confirmation of Your Coverage
New plan members receive a letter from their insurer with the date coverage becomes active. Generally, this is the first day of the month after enrollment is processed. Members joining mid-year receive a pro-rated yearly deposit based on their enrollment date.
5. What to Do if You Change Your Mind
It’s possible to return to Original Medicare if you find your MSA Plan doesn’t meet your needs. Consumers who join a Medicare Advantage Plan for the first time, including an MSA Plan, have a “trial right” to buy a Medigap policy and Part D drug plan if they go back to Original Medicare within 12 months.
Outside of the trial window, people unhappy with their MSA Plans can change plans during one of the two annual enrollment windows: Oct. 15 to Dec. 7 or Jan. 1 to March 31. During these times, it’s possible to return to Original Medicare or switch to another Medicare Advantage Plan.
Putting It All Together
Medicare MSA Plans are a lesser-known type of Medicare Advantage Plan that lets consumers self-direct their healthcare spending. The savings account component offers the flexibility to pay for non-Medicare-covered services. In contrast, the high-deductible health plan component helps members shield themselves from the high costs of medical emergencies.
These plans may be a good option for Medicare beneficiaries who rarely see a doctor and use few health services. People who need more care may prefer other Medicare plans. For help deciding which Medicare option best suits your needs, work with a trusted agent.