Travis Price is a licensed independent health insurance agent specializing in Medicare private insurance programs, including Medicare Advantage and Part D drug plans. Price has been in the Medicare industry since 2004, first in South Carolina and now in the Traverse City, Michigan, area.
Medicare Coverage and Funeral Costs
Generally speaking, Medicare does not cover funeral costs. Bereavement and funeral costs are not considered medical expenses and do not fall within the coverages allowed by Original Medicare.
Other parts of Medicare don’t typically cover funeral costs, either: Medicare Supplement Insurance plans and most Medicare Advantage Plans, also known as Part C, will not cover your funeral costs. Out of all of the options offered by private insurance companies, only one will allow you to use funds to cover final expenses: a Medicare medical savings account (MSA).
Can You Use a Medicare MSA To Pay for Funeral Costs?
Medicare MSAs are the only type of plan that your beneficiary can use funds to pay for funeral costs after you pass away. MSAs are a specialized type of Medicare Advantage Plan that works very similarly to a high-deductible health plan with a health savings account (HSA).
How does a Medicare MSA work?
There are two parts to getting access to an MSA.
- Join a high-deductible Medicare Advantage Plan. These plans will not cover any portion of your Medicare costs until you meet the high annual deductible. This amount varies depending on the plan you sign up for.
- Open an MSA. This is a specialized savings account that the plan deposits money into to cover your medical-related expenses. You can use these funds to cover medical expenses prior to meeting the annual deductible. The amount you receive also varies by plan.
How does a Medicare MSA help me pay for funeral costs?
Money deposited into the account prior to the current calendar year must be paid back to Medicare if you pass away on a pro-rated basis, depending on how many months are left in the year. However, any funds left in the account prior to the current year can be distributed to your beneficiary. Tax treatment is different between a spouse and any other beneficiaries:
- If your spouse is your beneficiary, the MSA funds transfer to them. This money is tax-free for qualified medical expenses.
- If anyone besides your spouse is the beneficiary, the funds cease to be protected under the MSA as of death date and become taxable. The amount taxable to a beneficiary ― other than your estate ― is reduced by any qualified medical expenses (QMEs) you incurred prior to your death that are paid from the Medicare MSA by the beneficiary within one year after the date of your death.
- If there is no beneficiary, the value of the remaining MSA funds ― minus any outstanding QMEs ― is reported on your final tax return.
In short, the funds inside an MSA can be used to pay for funeral costs after your death. However, those funds will be considered taxable as funeral expenses are not considered a QME.
Does Social Security Offer a Death Benefit?
Yes. Social Security can offer a death benefit dependent on the amount of time the loved one worked and the amount of Social Security tax was paid. This is a lump sum, one-time payment of $255.
Your spouse must be living with you when you die to claim this benefit. If they do not live with you, they have to be receiving Social Security benefits on your record.
You have no spouse, the benefits are paid to a child that is eligible for benefits under your record as of the month you pass.
To claim this benefit and report the death, your loved ones can contact your local Social Security office or call (800) 772-1213. They will need your Social Security number to report your death. Medicare will be notified by the Social Security system.Learn More From Our Sources
Learn More From Our Sources
- Medicare | How Original Medicare Works | Last accessed June 2023
- Medicare | Joining a Medical Savings Account plan | Last accessed June 2023
- Medicare | Report a death | Last accessed June 2023
- SSA | If You Are The Survivor | Last accessed June 2023