Medicare MSA Plans

Fact Checked

Medicare medical savings account (MSA) plans are a type of Medicare Advantage Plan that combines a high-deductible health insurance plan with a MSA. These plans are similar to Health Savings Accounts (HSAs) paired with a high-deductible health insurance plan.

While an MSA plan can offer savings, few Medicare enrollees take advantage of it. Medicare MSA plan enrollment was estimated to be only 6,000 out of the 22 million people who enrolled in Medicare Advantage Plans in 2019. MSA plans aren’t available everywhere, and the plans are often not well understood. Read on to find the answers to your questions about an MSA.

What Is a Medicare MSA Plan?

Medicare MSAs combine a MSA with a high-deductible health insurance plan. The plans are offered by private insurers and cover any medical expense that Original Medicare covers once the deductible has been met.

Plan structure High-deductible insurance plus MSA
Benefits available All Original Medicare benefits. May offer vision, dental, or hearing for an additional premium.
Qualified medical expenses Inpatient and outpatient services covered by Parts A and B

How MSA plans work

The MSA is funded by Medicare, which pays the private insurer to set up the account and deposit the funds. You’ll pay a Medicare Part B premium and do not contribute to the MSA. The associated Medicare Advantage high-deductible health plan (HDHP) must provide the same benefits, rights, and protections as Original Medicare, although each plan operates under different costs, rules, and restrictions.

The funds deposited into the plan are not taxable as long as you use them to pay for qualified medical expenses. You can roll unused funds to the next year and earn interest. But if you use funds for nonqualified expenses, you’ll pay both income tax and a 50% penalty.

Benefits available with an MSA plan

Medicare MSA plans may offer vision, dental, and hearing services for an additional premium but do not offer prescription drug coverage. You can purchase Medicare Part D coverage.

Reaching your deductible

You can use your MSA to pay for any qualified medical expense, but not all expenses count towards the plan’s deductible. Qualified medical expenses include all inpatient and outpatient services covered under Medicare Parts A and B, such as:

  • Doctor visits
  • Hospital stays
  • Home health care
  • Durable medical equipment

Expenses that don’t toward the deductible include services not covered by Medicare Parts A and B, such as:

  • Dental and vision care
  • Prescription drug coverage and costs
Advantages of a Medicare MSA Plan Disadvantages of a Medicare MSA Plan
  • Flexibility and control: You can choose your own medical providers
  • Tax-favored savings that you withdraw without penalty for medical expenses
  • Offers certainty for the maximum out-of-pocket expense
  • High-deductible health plan is required, which can lead to higher out-of-pocket costs
  • Maximum out-of-pocket costs may be much higher than other Medicare Advantage Plans.

Who Is Eligible for a Medicare MSA Plan?

Though most Medicare Advantage Plans are eligible to anybody who turns age 65 or is under the age of 65 and receives disability payments through Social Security or the Railroad Retirement Board (RRB), the eligibility rules for a Medicare MSA plan exclude certain individuals. You are not eligible for a Medicare MSA Plan if you:

  • Are eligible for Medicaid
  • Are currently receiving hospice care
  • Have health coverage that would cover your intended Medicare Advantage MSA plan’s deductible, which includes benefits from a union or employer retirement plan
  • Are a retired employee of the federal government receiving benefits from the Federal Employee Health Benefits Program
  • Live outside of the United States more than 183 days per year
  • Have end-stage renal disease (ESRD); there are some exceptions
  • Receive TRICARE or Department of Veterans’ Affairs benefits

How Much Does a Medicare MSA Plan Cost?

Your expenses will vary with an MSA plan. You’ll pay a Medicare Part B premium, but not an MSA plan premium. Instead, you’ll pay out-of-pocket costs until you reach your deductible, which may be higher than the deductible of other Medicare Advantage Plans.

In exchange for these higher expenses, a sum of money will be deposited into your MSA at the beginning of the coverage year. If you do not exhaust these funds on medical expenses by the end of the year, you canroll the funds into the following year.

If you choose a plan that offers vision, dental or hearing care, you will pay a premium for those additional benefits, as well as for a Medicare Part D prescription plan.

How Do I Enroll in a Medicare MSA Plan?

MSA plans are on the Medicare Advantage enrollment schedule and restricted to a specific time period.

  • If you are about to turn 65 years old and are newly eligible for Medicare you can sign up for a Medicare MSA during your Initial Enrollment Period (IEP).
  • If you are already enrolled in a Medicare or Medicare Advantage Plan, you can switch to a Medicare MSA plan for the following year between October 15 and December 7 of each year during the Annual Election Period. If you are already enrolled in a Medicare Advantage Plan, you can join an MSA plan from January 1 through March 13 during the MA-OEP. You may also be able to enroll during certain Special Enrollment Periods (SEP) as allowed by Medicare.

This type of Medicare plan can be more complicated to set up. It’s best to work with a Medicare broker or licensed agent familiar with this type of plan to help you navigate the enrollment.

Who Should Get a Medicare MSA Plan?

A Medicare MSA plan is meant to help you control your medical expenses. It’s a good choice if you don’t anticipate medical expenses that would exceed the amount deposited into your MSA. While there’s a risk that you’ll pay more out-of-pocket for health care services compared to other Medicare Advantage Plans, there’s also the potential for savings if you don’t have significant medical expenses.

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Medicare consultant and expert, seniors advocate, and author

Ron Elledge is an accomplished Medicare agent, planner, and author. Elledge earned a bachelor’s degree in Bible theology from International Seminary and spent 30 years in pastoral ministry. He began his current career in insurance with a specialty in Medicare in 2008 and has since authored “Medicare Made Easy: What Expats, Frequent Travelers and You Need to Know” and is often a featured speaker at the International Living conferences. Elledge is a contributor to International Living, supporting Medicare beneficiaries with articles, podcasts, and Q&As.

“A licensed seniors market insurance agent in Arizona and New Mexico, Elledge has helped thousands decipher the intricacies of Medicare rules and regulations, enabling them to make educated selections for their health care needs. As a world traveler with his wife, Shelli, Elledge specializes in Medicare for expats and frequent travelers. He’s up to date with Medicare regulations, coverage options, and enrollment protocols and is fervent in his resolve to present trustworthy data on this confusing and often maligned program.

“By obtaining dependable details on how to read their Medicare options, recipients can plan for it correctly and make the best choices,” says Elledge. “These choices often make a huge financial and emotional difference in their futures. When Medicare is correctly utilized, it becomes a powerful financial and medical tool for all who qualify.”

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