Medicare Medical Savings Account (MSA)
By Mike Montes – Updated May 10, 2023
Reviewed by Christine Corsini
Fact checked by Lou Spatafore
Medicare medical savings account plans (or Medicare MSA Plans) are Medicare Advantage plans that come with a special tax-favored bank account, where Medicare will make an annual deposit every year. You can use this money to pay for medical expenses until you reach your deductible, or for Medical expenses that Medicare does not cover.
How Medicare Medical Savings Accounts Work
Similar to a health savings account (HSA), Medicare MSA plans combine a high-deductible plan with a savings account to help pay for qualifying medical expenses.
High-deductible health plan
You must have a high-deductible MSA-qualified Medicare Advantage plan (Medicare Part C). After you meet that deductible, your plan will cover the rest of your qualified medical expenses 100%.
Only Medicare contributes to your account
It’s important to note that, unlike an HSA where you can contribute to the savings account, you cannot add money to the MSA. Once you’ve used the money, you must pay out-of-pocket until you meet your deductible.
$0 premium
Currently available MSA plans have a $0 monthly premium.
No network
You can see any provider that accepts Medicare.
Medicare medical savings account
- You set up an MSA bank account with that bank the plan uses.
- Medicare will deposit a pre-determined amount of tax-free money into your medical savings account yearly, currently either $2000 or $3000, depending on the plan you choose.
- That money can be used tax-free to pay for medical expenses while you’re waiting to hit your deductible, and for medical expenses Medicare does not cover, such as over-the-counter medications, dental expenses, eyeglasses, or alternative therapies.
- If the money in your MSA account is not spent, it grows tax-deferred and can be withdrawn tax-free at any time in the future to pay for medical expenses.
What type of medical expenses can you pay for with your Medicare MSA Plan?
Funds from a Medicare MSA plan are generally used to pay medical charges you incur before reaching your deductible. But they can be used for virtually any medical expense, including:
Eyeglasses, dental expenses,
and hearing aids
These are common expenses people experience in their retirement years that Medicare does not cover.
Alternative medicine
You are not restricted to spending your Medicare MSA plan money just on conventional allopathic medicine. You can use your funds to pay for virtually any type of alternative therapy, from acupuncture to reiki to crystal healing – as long as it is treatment for a specific health condition.
Medicine cabinet expenses
Virtually any over-the-counter medication can be paid for from your Medicare MSA plan, including pain relievers like aspirin, cold medicines, allergy medications, first aid supplies, and other similar items.
Elevated care
Whether you want to get a second or third (or fourth) opinion, or would like to pay extra for a private hospital room, having money in a Medicare MSA plan can provide a level of healthcare freedom that most retirees don’t experience.
Medicare Premiums
You can also use MSA funds to pay Medicare premiums, including Medicare Part B, and Part D prescription drug plans.
Things to be Aware of with a Medicare Medical Savings Account
MSAs do not include Medicare Part D prescription coverage. This gives you the flexibility to sign up for the best stand-alone Part D plan – a low-cost way to protect yourself from unexpected high prescription costs.You can use the money in your Medicare MSA for non-medical purposes also, but it comes at a steep cost. Not only will you have to pay taxes on that withdrawal, but there is also a 50% penalty. That money will also not go towards meeting your deductible.
The annual deductible will be higher than the annual amount contributed to your Medicare MSA, so you will be at risk for some out of pocket expenses until the funds in your account exceed your deductible.
You may also be able to invest your Medicare MSA money in mutual funds or other assets if the bank offers those options.
Medicare Medical Savings Accounts: Frequently Asked Questions
(View Story)
Q: What is the Medicare MSA Plan?
A: The Medicare MSA Plan is a high-deductible form of Medicare Advantage. The MSA Plan is the only way to open a Medical Savings Account (MSA), which is a tax-advantaged way to pay for medical expenses.
Q: When can I sign up for the MSA Plan?
A: You can sign up for the MSA Plan when you first sign up for Medicare as you turn 65. Alternatively, you can use Medicare’s Annual Enrollment Period from October 15th, to December 7th every year.
Q: What happens to the money in my MSA at the end of the year?
A: The money in your MSA belongs to you. That means that it doesn’t go anywhere at the end of the year, but stays in your account and can grow on a tax-deferred basis.
Q: Can I make contributions to my MSA account?
A: Your Medicare MSA Plan is the only entity that can make contributions to your MSA. This is unlike an HSA, which allows for individual contributions as well.
Q: What can I use my MSA account for?
A: You can use the funds in your MSA to pay for a wide range of medical expenses. This includes premiums and pre-deductible services, as well as things not covered by Medicare, including vision, dental, and over-the-counter medication.
You can even use your MSA funds to pay for non-medical expenses like groceries. However, withdrawals for non-medical expenses will be subject to a steep tax penalty.
Who Benefits from Having a Medicare Medical Savings Account?
Medicare MSA plans are a fantastic option for people who don’t tend to use a lot of medical services and would like a way to build up additional funds to cover future medical expenses.
Medicare MSA plans are favored by people who want to be able to choose their own doctor, but are looking for a less expensive alternative to a Medicare supplement plan.
They also work well for people who tend to use alternative treatments, and those who want more control on where their healthcare dollars go.
Sign Up or Get More Information
Medigap Advisors offers Medicare MSA plans, so if you’re interested, we would love to talk to you more about them. Contact your Personal Benefits Manager to get that dialogue started, schedule a time to talk to one of our experts, or call us at 800-913-3416.