Frequently Asked Questions About Medicare Medical Savings Accounts (MSA) and MSA Plans
There’s a new type of tax-advantaged health plan in town, and if you haven’t heard people talking about it, then it’s only a matter of time.
Medicare MSA Plans are consumer-directed healthcare at it’s best. By combining $0 premium, high-deductible coverage with specialized savings accounts, these plans let you decide how your Medicare dollars should be spent.
This guide will answer the most frequently asked questions about MSAs and Medicare MSA Plans.
Q: What are MSA Plans?
A: Medicare MSA Plans are a high-deductible form of Medicare Advantage. These “consumer-directed” plans cover all the same things as Original Medicare, with some MSA plans covering additional things like dental, vision, and long-term care.
There are no premiums to pay for an MSA plan, other than the Part B premium you’re already paying. MSA Plan coverage only becomes active when you have met your annual deductible.
The other aspect of MSA Plans is a savings account, funded by Medicare, that beneficiaries can use to pay for out-of-pocket expenses. The money in an MSA belongs to the beneficiary, who can use it to pay for virtually any type of medical expense, tax-free.
Q: What is a Medical Savings Account (MSA)?
A: A Medical Savings Account, or MSA, is a savings account that can be set up to pay for medical expenses. MSAs work exclusively in conjunction with Medicare MSA Plans.
Q: How do MSAs and MSA Plans work?
A: MSAs are really no more complicated than any other form of Medicare. Here’s how MSAs and MSA plans work:
- Start by choosing and joining a Medicare MSA plan. These are high-deductible Medicare Advantage plans that cover your health costs after you meet your deductible.
- You go online to set up your Medical Savings Account, an easy process that only takes about a half hour.
- Medicare deposits a set amount of money into your MSA on a regular basis
- The money in the account becomes yours, and is tax-free when used for qualified medical expenses. Your MSA can even be used to pay for the cost of Medicare-covered services and have it counted towards your deductible.
- If you use all the money in your MSA, any other health costs for the rest of the year will have to be paid out of pocket, unless you’ve met your plan’s deductible.
- If there is money in your MSA at the end of the year, it stays there. It will rollover to the next year.
- When you file your taxes, you will need to account for any MSA funds that were used over the course of the year, otherwise the MSA withdrawal will not be tax-free
Q: What’s covered by MSA plans?
A: MSA plans are a type of Medicare Advantage plan, which means that they cover everything that Original Medicare does. Some MSA plans offer additional coverage for things like vision, dental, hearing, and long-term care.
Q: What can a Medical Savings Account (MSA) pay for?
A: Your MSA can be used to pay for:
- All Medicare-covered Part A and Part B services (pre-deductible)
- Qualified expenses that are not covered by Part A and Part B (hearing, vision, dental, etc.)
- Part D prescription drug plans
Q: Can I use my MSA to pay for non-medical expenses?
A: The money in your MSA belongs to you, and the account is at your full control. This means that your MSA funds can even be used to pay for things like groceries and bills. However, withdrawals for non-medical expenses will be taxed, and these expenses will not count towards the deductible.
Q: What’s the difference between an MSA and an HSA?
A: The primary difference between MSAs and HSAs is that MSAs are funded by your Medicare plan, while HSAs are funded by individuals or employers. Both MSAs and HSAs can be used to pay for qualified medical expenses, and both also require that the owner of the account is enrolled in a high-deductible plan.
Q: Do the funds in an MSA account expire?
A: Any unused funds in an MSA account at the end of the year do not expire, but rollover to the next year, just like any other savings account. The money in an HSA belongs to and is entirely directed by the beneficiary.
Q: What is consumer directed Medicare?
A: MSA Plans are designated as “consumer directed”. This means that the individual enrollee gets to decide when, where, and how to use their Medicare benefits. More specifically, it means that the individual has complete control of the MSA account and is the full owner of any funds inside of it.
Q: What happens to my MSA if I change Medicare plans?
A: If you are switching from one MSA Plan to another MSA Plan, then you do not need to worry about the funds in your account. Your new plan will continue to contribute to the account (though perhaps at a different level, depending on the plan).
If you are switching to a non-MSA plan, the account and funds remain in your control until they run out. However, the account will no longer be funded by Medicare.
Q: What happens to the money in my MSA account when I die?
A: Just like HSAs, IRAs, and 401Ks, MSAs are fully inheritable accounts. The only requirement is that a specific beneficiary is named. Like other retirement accounts, the beneficiary can be anyone you want it to be,
Q: Do MSA plans work with other types of insurance?
A: In general, MSA Plans are not designed to work in conjunction with any other plan that would cover any of the same costs as Part A and Part B. However, MSA Plans can work alongside standalone plans for things like vision, dental, long-term care, and Part D prescription drug plans.
Any premiums paid for these stand-alone plans will not count towards your MSA Plan’s deductible.
Learn more about Medicare MSA Plans
If you are interested in learning more about Medicare MSA Plans, you can read our comprehensive guide on the subject. You can also reach out to your Personal Benefits Manager, who has all the up-to-date details on the new MSA plans in 2021.
Remember: the only time you can normally change your Medicare coverage is during Open Enrollment, which lasts from October 15th to December 7th every year.
Call 970-999-0989 or click the link below to make an appointment.
Wiley Long is founder and president of Medigap Advisors, and is passionate about helping people navigate the confusing waters of Medicare. He is the author of The Medicare Playbook: Designing Your Successful Health Coverage Strategy, a clear and simple explanation so you can make the most of your Medicare coverage.