Contrary to popular belief, you can, in fact, spend Medicare MSA money on nutritional supplements. However, unlike most expenses that would clearly qualify under Medicare Parts A or B, nutritional supplements may not qualify for tax-free treatment of withdrawals.
They also may not count against your Medicare Part A or B deductible.
The caveat is that to make tax-free withdrawals from your MSA to pay for nutritional supplements, the supplement must be recommended by a medical professional to treat or prevent a specific, diagnosed condition.
Just taking some vitamins, zinc, testosterone, St. John’s wort, or any other nutritional supplement to promote general health, or boost an already healthy immune system without a supporting diagnosis would not qualify for tax-free treatment of MSA withdrawals.
Similar rules apply to using money in health savings accounts (HSAs), health reimbursement arrangements (HRAs) and Archer Medical Savings Accounts for nutritional supplements: To qualify for tax-free distributions of funds from these accounts, the supplement must be recommended by a doctor to treat a specific diagnosed condition, or to help prevent a specific health condition.
What is an MSA and how do they work?
The term “MSA” stands for “Medicare Savings Account.” These innovative Medicare Advantage products combine a high-deductible health plan with a cash savings account.
Medicare MSAs are a type of Archer Medical Savings Account.
Your plan will work with a partner bank, and credit your MSA account with a set amount of cash every year. You can use the money in your MSA free for medical expenses not covered by your plan, such as deductibles and copays.
The bank your plan selects may give you a special debit or credit card to use with your account. When you have a medical expense, like a copayment for a doctor’s visit, you could pay for it by using the card. The money will come out of your account.
Some banks may use a checking account without a debit or credit card.
Note: You don’t contribute your own money to your Medicare MSA. Only your Medicare Advantage plan does.
Medicare MSA and Dental & Vision Coverage
In addition, some Medicare MSA plans may cover some extra benefits like dental, vision, and hearing services. You may pay a premium for this extra coverage. However, MSA plans don’t cover prescription drugs.
Qualified Medical Expenses
Only qualified medical expenses are eligible for tax-free treatment if paid for using funds from a Medicare MSA withdrawal. Generally, these expenses are those defined as qualified medical expenses on IRS Publication 502 – Medical and Dental Expenses.
Withdrawals from MSAs for other non-medical expenses are generally subject to income tax, similar to a traditional IRA, if the money is not used for a medical expense. So to get the most value from your Medicare MSA account, try to use the funds for qualified medical expenses. That way, you get the full benefit of tax free withdrawals.
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Beware the Penalty on MSA Withdrawals for Non-Medical Expenses!
Additionally, if you use MSA money for non-medical expenses, the IRS will assess a 50% tax penalty on the amount withdrawn. That’s one of the most draconian tax penalties anywhere in the tax code.
It’s also why you should be very careful to document your diagnosis with supporting medical records and your healthcare practicioner’s recommendation if you use Medicare MSA money to pay for nutritional supplements.
Do Vitamins Qualify Under Medicare MSA Accounts?
Like other nutritional supplements, vitamins are MSA-qualified expenses only if they have been recommended by a medical or health professional for the treatment or prevention of a specific disease or condition.
Money spent on vitamins for the promotion of general health, absent a specific health practitioner recommendation for a diagnosed condition doesn’t qualify for tax-favored treatment with Medicare MSAs.
Is there a cap on nutritional supplement spending from my MSA?
No. You can spend up to 100 percent of your Medicare MSA money on nutritional supplements.
Does the Recommendation for a Nutritional Supplement Have to Come from an MD?
No. The recommendation could come from an OD, a chiropractor, or even a holistic health practitioner of any type.
However, I recommend that you get their specific recommendation in writing, along with documents supporting your diagnosis. That way, you’ll have something to support yourself with if you’re ever audited or if your transaction is challenged.
Do I need to have a specific prescription?
It’s a good idea to have one on file, just in case you’re audited. However, there’s nothing in the law specifically requiring you to have a formal prescription in order to use tax-free MSA money for nutritional supplements.
A simple note from your provider can suffice. For example, (For example, “I, [Provider], recommend [supplement] to treat or prevent issues related to [specific condition].
Who Can Join a Medicare MSA Plan?
To be eligible to join a Medicare MSA plan, you must first be enrolled in Original Medicare (Parts A and B).
Then you must enroll in a Medicare Advantage high-deductible health plan (HDHP) that supports Medicare MSA accounts.
You can enroll in a Medical MSA plan when you first become eligible for Medicare, or during the Annual Election Period, which takes place between November 15th and December 7th31st of each year.
The Annual Election period is the only time during the year in which all Medicare Advantage beneficiaries have a guaranteed right to make changes to their Medicare Advantage plans.
You can’t be in a Medicare MSA plan or any other Medicare Advantage plan and a Medicare Supplement (Medigap) plan at the same time.
Medicare MSAs, Medicare Part D Coverage, and Prescription Drugs
You can use money from your MSA to pay your Part D prescription drug premiums.
You can also use your Medicare MSA account to pay for copayments under a Medicare Part D Drug Plan. The Part D copayment amounts don’t count toward your Medicare MSA Plan’s deductible.
But any MSA money that you spend on your Part D copayments counts toward your out-of-pocket costs under Medicare Part D. This determines when you’ll be eligible for catastrophic coverage under your Part D plan.
Documenting Medicare MSA Qualified Medical Expenses
You must document your Medicare MSA transactions on your personal income tax return every year. To do so, you’ll file an IRS Form 8853.
You should keep any health care bills or receipts you get to make it easy to track your account usage for tax purposes. It may be helpful to keep this information in one place.
If you keep your deposit in the bank your plan selects, you’ll get a statement each month detailing all your transactions from the account.
Your statement will also include information on whether your expenses count toward your deductible. Depending on the plan, you may be able to view your account on the web.
If you move your deposit to a different bank or financial institution, you’ll be responsible for tracking and documenting your own expenses.
Tax Considerations of Medicare MSA Accounts
If you have withdrawals from your Medicare MSA account and you can’t correlate them to a qualified medical expense, then the IRS will consider any amounts withdrawn to be ordinary income. Similar rules apply to health savings account withdrawals, if any, as well.
That income could cause other tax ramifications, as well. For example, it could trigger additional tax on your Social Security benefits, or push you into a higher marginal income tax bracket.
However, you can reduce or eliminate this possibility by limiting your MSA withdrawals to pay for qualified medical expenses and keeping careful records.
Conclusion
Medicare MSAs can be a terrific choice for some Medicare beneficiaries. They tend to work best for those in higher tax brackets and who are in relatively good health, and who have the resources to cover the deductible in a Medicare High Deductible Health Plan.
You can use the money to cover any medical expense – including some that you might not think of, such as if your doctor recommends calcium supplements to help prevent osteoporosis, or a probiotic to improve your gut health.
As with other forms of consumer-directed health insurance, such as health savings accounts, Medicare MSAs require you to take on more responsibility for managing and resourcing your own health care.
But they also provide you with more control over your health care, too. And since Medicare MSA funds can be spent with any provider and not just at providers within your HMO or PPO, they give you more flexibility to make your own decisions.
Would you like to explore whether an MSA plan is right for you? Click here to schedule a no-cost appointment with a Personal Benefits Manager.
Here are some additional articles on healthsharing programs: MSA Plans: The Medicare Advantage Plan with Extra Advantage | Frequently Asked Questions About Medicare Medical Savings Accounts (MSA) and MSA Plans
Here are some additional pages related to this article: Learn more about Medicare MSA plans | Learn more about Medicare Advantage plans
Lou Spatafore works for MediGap Advisors. As a PBM, his focus is to help people find the best Medicare plan for his clients. Read my full Bio.