Medicare MSA Plans

Fact Checked
Published: 8/20/2020
Contributing Expert: Ron Elledge
Reviewed by: Caren Lampitoc

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Ron Elledge
Medicare Consultant and Author
Ron Elledge
Medicare Consultant and Author

Ron Elledge is a seasoned Medicare consultant and author of “Medicare Made Easy.” As a Medicare expert, he regularly consults beneficiaries on Medicare rules, regulations, and strategies.

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Caren Lampitoc
Medicare Consultant
Caren Lampitoc
Medicare Consultant

Caren Lampitoc is an educator and Medicare consultant for Medicare Risk Adjustments and has over 25 years of experience working in the field of Medicine as a surgical coder, educator and consultant.

Medicare Medical Savings Account (MSA) Plans are a type of Medicare Advantage plan that offers enrollees a combination of a high-deductible health insurance plan and a Medical Savings Account from which qualified medical expenses can be paid. Once the MSA funds are exhausted, medical expenses are paid out-of-pocket until the maximum out-of-pocket deductible is met.

These plans resemble the Health Savings Accounts that many employees receive from their employers if they choose a high-deductible health insurance plan, though in the case of Medicare MSAs, the enrollee’s account is seeded by Medicare. (Note: If you have an HSA you cannot be on Medicare A or B if you wish to continue making contributions to the account.) The maximum out-of-pocket expense for a high-deductible health insurance plan can be as much as double that of other Medicare Advantage plans. After the amount deposited by Medicare is depleted, you pay out of pocket until the yearly deductible is met, then the plan pays for Part A and B coverage as long as the doctors and facilities accept Medicare assignment.

Medicare MSA plan enrollment is estimated to be just 6,000 out of the 22 million people who enrolled in Medicare Advantage plans in 2019. That is in part due to the fact that they are not offered everywhere and in part because they are not well understood. We have prepared the following guide to provide you with the answers that you need when considering all of your Medicare Advantage options.

What is a Medicare MSA Plan??

Medicare MSAs combine a medical savings account 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.

The Medical Savings Account portion of the MSA plan is funded by Medicare, which pays the private insurer to set up the account and deposit the funds. The associated high deductible health insurance plan is required to provide the same benefits, rights and protections as Original Medicare, though each plan operates under different costs, rules, and restrictions. The beneficiary is required to pay their Medicare Part B premium and is not permitted to add additional money to their Medicare Savings Account. The funds deposited into the plan are not taxable as long as they are used to pay for qualified medical expenses. Any funds that are not used by the end of the year can be rolled over and combined with the next year’s deposit to be used to pay for the following year’s medical expenses. It can also earn interest. Any funds that are used for non-qualified expenses are subject to both income tax and a 50% penalty.

Medicare MSA plans may offer vision, dental, and hearing services for an additional premium, but they do not offer prescription drug coverage. MSA enrollees are permitted to purchase Medicare Part D coverage for themselves.

Enrollees in Medicare MSA accounts can use their Medical Savings Account to pay for any qualified medical expense, but not all expenses count towards the plan’s deductible. Those that do count include all inpatient and outpatient services covered under Medicare Parts A and B such as doctor visits, hospital stays, home health care, and durable medical equipment. Those that do not count towards the deductible include services not covered by Medicare Parts A and B such as dental and vision care and prescription drug coverage and costs.

Medicare MSA accounts can have maximum out-of-pocket amounts that are double the $6,700 allowed for other Medicare Advantage plans. Unlike other Medicare Advantage plans, if you join an MSA plan after January 1, your yearly deductible will be prorated to the number of months left in the year. Though some of these plans have a network of providers that charge lower contracted fees, not all do, and MSA enrollees can seek care from any provider that accepts Medicare. There is no requirement that beneficiaries choose a primary care physician or get referrals for specialist services.

Advantages of a Medicare MSA Plan

Medicare MSA plans offer the advantage of flexibility and control. Enrollees are able to choose their own medical providers and pay a good portion of their qualified medical expenses with funds that are provided by Medicare through the private insurer that provides their high deductible Medicare Advantage health insurance coverage.

For those who are over the age of 65 and healthy, the plans represent tax-favored savings accounts. They offer the ability to receive funds that grow free of taxes and which can be withdrawn without penalty for their own medical expenses, while at the same time providing certainty regarding the maximum that they will have to spend out-of-pocket should catastrophic medical care be required.

Disadvantages of a Medicare MSA Plan

Medicare MSA plans require enrollment in a high-deductible health plan that often leads to higher out-of-pocket costs for medical services than what is charged to enrollees in other Medicare Advantage plans. They also carry maximum-out-of-pocket deductibles that can be as much as double that of any of the other Medicare Advantage plans, though this is somewhat offset by the amount deposited in your MSA account from Medicare. Enrollees in Medicare MSA plans will benefit from not having to pay a premium for their coverage and initial funding that may be more than enough if they only need a minimal amount of medical care during the year — but should they need multiple procedures or constant physicians’ appointments they may need to spend a significant amount of money beyond the amount in their MSA before the insurance plan begins to provide coverage.

Who is eligible for a Medicare MSA Plan?

Though most Medicare Advantage plans are eligible to anybody who turns 65 or who is under the age of 65 and receiving disability payments through Social Security or the Railroad Retirement Board, the eligibility rules for a Medicare MSA plan excludes 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. This 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 (there are some exceptions)
  • Receive TRICARE or Department of Veterans’ Affairs benefits

How much does a Medicare MSA Plan cost?

Every Medicare MSA offers different benefits, different MSA levels, and different deductibles. The best way to determine what a plan will cost is by asking plan representatives about these details. You will need to continue paying your Medicare Part B premium but will not need to pay a monthly premium for the Medicare MSA plan itself. Your out-of-pocket costs for medical care are likely to be higher than those paid by enrollees in other Medicare Advantage plans, and you will continue having to pay those expenses until you reach the plan’s maximum out-of-pocket deductible. 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 are able to keep them and roll them into the account for 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?

Though Medicare MSA plans are significantly different from other types of plans, they still involve enrolling in a Medicare Advantage plan, and therefore enrollment is still 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 15th and December 7th of each year during the Annual Election period, from January 1st through March 13th during the MA-OEP, or 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 agent familiar with this type of plan to help you navigate the enrollment.

Who should get a Medicare MSA Plan?

A Medicare MSA is meant to help enrollees control their medical expenses. Beneficiaries have the risk of paying more out-of-pocket for healthcare services than do those in other Medicare Advantage plans, but those who do not anticipate having significant medical expenses may find the plans economically attractive. While the amount deposited into the savings account falls far short of the high deductible, enrollees also know the maximum amount that they will need to pay out-of-pocket before their expenses are fully covered for the remainder of the year.

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