Using Your Medicare Medical Savings Account (MSA) to Pay for Qualified Medical Costs
But getting the most value ($$) from your MSA Plan requires more than completing some enrollment paperwork. It’s all about using your MSA funds in a way that will maximize your growth, while staying healthy enough to actually take advantage of your low monthly premiums.
Whether you already have an MSA Plan or you’re hearing about it for the first time, we’re here to help. In this guide, I’m going to review some of the basics about the Medicare MSA Plan, before going on to ask one of the most common questions about MSAs.
Key Takeaways: What Can I Pay for With My MSA?
- The full “Medicare MSA Plan” has two distinct parts:
- A high-deductible Medicare Advantage plan (MSA Plan)
- A consumer-directed Medical Savings Account (MSA).
- You can use the funds in your MSA to pay for qualified medical expenses, tax-free
- MSA-qualified expenses include Part A & Part B premiums, Pard D prescription drug coverage, hearing, dental, and much, much more.
- You can use your MSA funds on non-medical expenses like groceries, but the withdrawals will become subject to a steep tax penalty.
Start Here: What is an MSA?
The Medicare MSA Plan is a high-deductible form of Medicare Advantage that is paired with a consumer-owned Medical Savings Account (MSA). With the Medicare MSA, a portion of Medicare benefits are paid out via annual deposits to a personal, tax-advantaged savings account.
The big advantage of the Medicare MSA is that it allows the enrollee to decide how their Medicare dollars are being spent. All funds in the MSA account belong to the enrollee, and even roll over from year to year.
MSA funds can be used tax-free on a wide range of qualified medical expenses. You can even spend MSA funds on non-medical expenses (albeit with some added income tax). It’s called consumer-directed Medicare, and it’s changing the way people are managing their health costs.
There are two parts to the Medicare MSA:
Part one: High-deductible Medicare Advantage
The first “part” of the Medicare MSA is the high deductible plan. This is a privately insured plan that is designed to pay for everything that Medicare does, and usually quite a bit more. Like regular health plans, your Medicare Advantage plan will start to cover costs once you’ve met your deductible.
One of the biggest benefits of Medicare Advantage is that it’s easy to add additional coverage. Things like vision, hearing, dental, and long-term care can be easily added in. Once you’re enrolled, you only have one plan to worry about, as opposed to a bunch of different standalone supplement plans.
Part two: Medical Savings Account
Once your high deductible MSA Plan is in place, you’re qualified to open a Medical Savings Account (MSA). This is an easy process that can be done on the computer, usually within about a half an hour.
After you setup your MSA account your high deductible MSA Plan will make regular deposits to your MSA. This money belongs to you, the account and policy holder. It grows from year to year, and can be spent on anything you want. However, only withdrawals used for qualified medical expenses will remain un-taxed.
In order to get the most out of your MSA Plan, it’s vital that you only use the funds for medical expenses. Fortunately, the actual scope of what qualifies as a “medical expense” is quite broad.
Using an MSA to pay for “qualified medical expenses”
The only way to get real value from the Medicare MSA Plan is to only use MSA funds for medical expenses. But by going through the full list item by item, it’s usually possible to find some things that you are currently paying for with taxed dollars.
Therefore, using your MSA funds in the right place makes more of your everyday expenses tax-free. And the funds themselves are coming from your insurance plan, not your retirement income.
Everything an MSA Can Pay For:
Pre-deductible Part A and Part B services
The Medicare Part A deductible is up to $1,484 in 2021, while the part be deductible is $203. While this might not seem like that much, it’s actually a significant expense to have to pay out-of-pocket. This is especially true when you consider that most people pay their pre-deductible expenses from their savings account. Or even worse: from their retirement.
If you need to pay for out-of-pocket expenses because you have not yet met the deductible, you should use your MSA. There’s no reason to dip into your nest egg when there’s a tax-free resource like this at your fingertips.
Hearing exams, hearing aids, and hearing aid batteries
Your Part B medical insurance will cover a diagnostic hearing exam if it’s requested by a doctor. But you’re still paying 20% of the costs, as well as whatever is left of your Part B deductible. That’s why most Medicare enrollees choose to supplement their coverage with a standalone hearing plan.
But depending on where you’re at in life, you might not need to pay for a standalone hearing plan like Medigap. Instead, you can use the funds in your MSA to cover the costs should they arise. These costs can include out-of-pocket expenses from your hearing exam, or even the cost of hearing aids and batteries.
Vision exams, Rx eyeglasses, reading glasses, contact lenses, and laser eye surgery
Routine eye exams are one of the most glaring things missing from Original Medicare coverage. Medicare enrollees are 100% responsible to pay for eye exams, glasses, and contact lenses.
Fortunately, most people don’t have to pay too much for eye care. Buying a stand-alone Medigap plan simply for eye care might not be worth the extra money. Having MSA funds ready to go makes the occasional eye exam easy to pay for.
MSA funds can even be used to pay for contact lenses and LASIK eye surgery.
Dental treatments, X-rays, fillings, braces, fluoride treatments, and orthodontics
Dental care is the perfect way for the discerning Medicare enrollee to spend their MSA funds. Essential services like crowns and cavities can cost thousands without a dental plan. Even something as simple as a mouth x-ray can set you back a hundred bucks.
Part D prescription drug plans
The way prescription drugs are handled by Medicare is way more confusing than it needs to be. But one thing is for sure … Original Medicare doesn’t come close to making prescription drugs affordable. Your Part B medical insurance only covers a handful of drugs in a very specific set of circumstances.
Using your MSA to pay for a Part D plan drives the total cost of your prescriptions even lower.
Common over-the-counter medicines (OTC drugs)
Not everything that you get over-the-counter is a qualified expense, but the list is quite expansive, including:
- Acne medicine
- Eye drops
- Sleep aids
- Stomach remedies
- Motion sickness medicines
- Allergy medicine
- Anti-itch or anti-fungal products
- Common pain relievers like aspirin or ibuprofen
- Nasal drops and sprays
- Cold and flu medicines
For both emergency and non-emergency ambulance services, Medicare will cover 80% of the cost. You still have to pay the Part B deductible of $203, then the remaining 20% of the bill.
But it can get more complicated than that. Medicare will only cover transportation to the “nearest appropriate medical facility”. If you direct them to take you to the hospital that you actually want, it could end up costing you.
No matter what the situation is, riding in an ambulance is going to come with a bill. Your MSA can keep these costs from catching you off guard.
Acupuncture, chiropractic services, and physical therapy
Medicare Part B covers some acupuncture visits in cases of chronic back pain, but only if your doctor says so. The same goes for chiropractic services, which are only covered if deemed medically necessary.
For physical therapy, Medicare will cover 80% if medically necessary, but you’re still on the hook for the remainder.
Your MSA can help you pay for the physical services that you need to stay happy and healthy. Not just those services that the doctor thinks you need.
Other things your MSA can pay for:
- Speech therapy
- Smoking cessation programs
- Inpatient alcohol treatment
- Medical alert bracelets
Making the Most of Your MSA Funds
The Medicare MSA Plan is what’s known as consumer-directed healthcare. That means that you are empowered to make the most important decisions regarding your healthcare. From which facility you use to what additional services you want to pursue.
But the real way to take advantage of the full MSA Plan is to keep your medical needs low. That means staying as healthy as possible, so those low premiums and MSA deposits can add up to a sizable amount. Then, when a large or unexpected medical cost heads your way, you don’t have to dip into your retirement savings to cover it.
On the other hand, if you’re paying for something that is considered a “qualified medical expense”, you might as well use your MSA.
Talk to Your Personal Benefits Manager about the Medicare MSA Plan
If you’re interested in signing up for the Medicare MSA Plan, your Personal Benefits Advisor can help.
The only time to sign up for a Medicare MSA Plan is during the Open Enrollment period from October 15th to December 7th. But certain life events might qualify you for a Special Enrollment Period, and it never hurts to be prepared to make the switch.
You can click here to schedule a free Medicare MSA consultation, or call us anytime at 800-913-3416.
Tom Lockwood is a Personal Benefits Manager at MediGap Advisors. Tom has a passion for bringing clarity to those confused about Medicare. He is an authority on Medicare, Medicare supplement plans, Medicare Advantage plans, and Part D prescription drug plans. Read more about Tom on his Bio page.