A Medicare Medical Savings Account (MSA) Plan is a consumer-directed Medicare Advantage Plan. It operates as a Medical Savings Account with a high deductible Medicare Advantage Plan attached to it.
Money is contributed to the members MSA (the bank account part) tax free on the members behalf and the member can use that money to meet the Medicare Advantage Plan’s deductible. These plans do not pay for any services at all until the deductible it met. They are required to cover all Medicare covered Part A and B services at 100% after the deductible is met.
MSA Plan Basics
- Premiums are always $0
- Does not include the Part D Drug coverage so a Part D drug plan of choice needs to be purchased separately.
- Allows the use of the largest provider network of any Advantage Plan because members can use any provider that participates in Medicare and accepts the MSA plan.
- An MSA is the only type of Medicare Advantage product to give members money to use towards their deductible. The leftover money stays in their account as long as you stay enrolled in the plan all year.
- The amount deposited into the Beneficiaries account each year is $2000 or more annually, depending on the plan. Only money the member spends toward Medicare Covered Part A and B services are applied to the deductible. We will discuss this further down.
- No services are paid for by the plan until the deductible has been met, including Preventive Care services. However, with some plans, members can earn money in gift cards annually when completing certain wellness activities to encourage preventive care.
Now let’s dig into more details:
MSA plans differ from their more widely known cousin, the HSA (health savings account) which are available outside of Medicare, in several important ways:
- MSA Advantage plans are Only offered to Medicare Eligible people.
- HSAs are only offered to people who are NOT eligible for Medicare.
- MSA members cannot make contributions to their savings account on their own, only CMS (the Center for Medicare and Medicaid Services) and the insurance company sponsoring their Advantage plan, can deposit funds into the member’s account.
- Members cannot use their Medicare Savings Account funds to pay for a spouse or dependent’s qualified medical expenses.
Would an MSA be the right type of Medicare advantage plan for you? See if the following statements apply to you:
Are you someone who expects low medical expenses?
Are you enrolled in Medicare Parts A and B?
Are you not eligible for Medicaid?
Do you live in an MSA service area?
Have you resided in the USA for at least 183 days or more in the calendar year?
Do not have any other coverage that covers the MSA plan deductible, like employer or union group benefits, Tricare, the VA or FEHBP?
You are not currently receiving Medicare hospice benefits.
If you can answer “yes” to the above questions, a MSA plan might be right for you!
How do MSA plans work?
A member typically joins the plan at the beginning of the year. Money is then deposited in the member’s account and grows tax free. The member can spend money from the account tax-free as long as it is spent on qualified medical expenses.
The money spent counts towards the members deductible of their health plan as long as the services used are covered by Medicare parts A and B. Any money left over in the account at the end of the year is the members to keep in the account going forward.
Members can choose to leave the plan at the end of the calendar year and keep the money that was deposited in their account. However, the savings account administrator (bank) may start charging the member a service fee to house their MSA bank account if the Medicare beneficiary is no longer a member of a sponsoring insurance plan.
How does the savings account money work towards the members plan deductible?
MSA money deposited in the members account is tax free, grows tax free and as long as it is spent on qualified medical services, it is spent tax free. However, it does NOT count towards the member’s deductible unless the expense is ALSO covered by Medicare Part A or Part B services.
Money spent from an MSA is paid out at the Medicare Reimbursement Rate.
When the member has a service that is covered by Medicare Part A or B, the member pays according to the Medicare fee schedule. That means the member pays 100% of the Medicare Fee For Service scheduled allowable amount. Want to see what those prices look like? Check out The Medicare Procedure Price Lookup Tool at: https://www.medicare.gov/procedure-price-lookup/
Remember Only money spent toward services that are covered by Medicare Parts A and B will count towards the plan’s annual deductible, that needs to be satisfied before the MSA plan will pick up and pay at 100% for all other Medicare covered services.
What can MSA funds be spent on and remain Tax Free?
On any Qualified medical expenses as defined by the IRS in the IRS publication 502. But remember, just because Medical Savings Account money can be spent tax-free does not mean all of that would count towards the deductible of the member’s health plan.
As long as the member stays enrolled in the plan, through the end of the year, the deposited funds belong to the member.
After the first year, if the member does not decide to re-enroll in the MSA advantage plan, the leftover funds are theirs to keep. The money must always follow the IRS guidelines for a qualified medical expense to remain tax-free.
If the member leaves the plan during the calendar year for any reason, they owe a portion of that calendar year’s deposit back, whether the money is still in their account or not.
Tax must be filed, and Specific tax forms must be also filed when submitting income taxes for the year the member used funds, for any reason, from the MSA account.
As mentioned above, with an MSA Advantage Plan, you would need to add a standalone drug plan. You are also allowed to add other ancillary coverages such as hospital indemnity plans, vision, dental, and long-term care policies to name a few.
Joining an MSA has tighter rules than other Advantage plans. When can a Medicare beneficiary join in MSA Advantage Plan?
A Medicare beneficiary can only join when they first become eligible for Medicare Parts A and B OR during any Annual Enrollment Period held nationwide each October 15th through December 7th.
No other Special Enrollment Period is given for this type of Medicare Advantage plan. So, for instance, if a person retires from their job after age 65, they would not be able to join an MSA Medicare Advantage plan until the next annual enrollment period the following October/November. Fortunately, at the time of this writing, Open Enrollment for Medicare is right around the corner, Oct 15-Dec 7th!
For more research on Medicare MSA Plans please a visit Medicare.gov. Here are some links to help you: