A Medicare Medical Savings Account Plan combines a high-deductible Medicare Advantage plan with a Medical Savings Account, or MSA. It works much like health savings account plans for people with individual or employer-sponsored insurance.
Medical Savings Account Plans
There are two components to a Medical Savings Account Plan:
- A high-deductible Medicare Advantage Plan: Medicare Advantage (Part C) plans are sold by private insurance companies as an alternative to traditional Medicare. All Medicare Advantage plans offer Medicare Parts A and B benefits. But with a high deductible plan, you must pay the deductible amount yourself before Medicare begins to pay. Once you reach your deductible, Medicare pays all your covered costs.
- A Medical Savings Account: Each year, Medicare will deposit a specified amount of money into your Medical Savings Account. If you use this money for expenses covered by Medicare, the money you spend will count toward your deductible.
Eligibility for a Medical Savings Account Plan
If you’re eligible for Medicare and you don’t have end-stage renal disease or other health insurance, you can usually sign up for any Medicare Advantage plan that’s offered in your area, including an MSA plan.
However, if you’re already enrolled in traditional Medicare or a different Medicare Advantage plan, you may not be able to switch to an MSA plan until the next Annual Election Period, from October 15 – December 7 each year.
However, as of 2019 Medicare Advantage enrollees have another chance each year to either switch back to Original Medicare or change to a different Medicare Advantage plan. With the return of the Medicare Open Enrollment Period, which is between January 1st and March 31st, enrollees who are unhappy with their Medicare Advantage plan can do something about it.
Setting Up and Using a Medical Savings Account
When you enroll in an MSA plan, your plan provider will tell you how to set up your medical savings account at a bank. Medicare will then deposit money into your account for the year. You cannot add your own money to this account.
The bank may send you a debit or credit card that you can use to pay expenses directly from your MSA. You can use the MSA for anything you want – including non-healthcare costs – but there is a big advantage to using the money for healthcare expenses.
- If you use the MSA to pay medical expenses covered by Medicare, such as hospital bills, tests, or the cost of seeing a specialist, then the money you spend counts toward your annual MSA plan deductible.
- You use the MSA to pay for healthcare expenses that aren’t covered by Medicare, such as getting a filling at the dentist, then the money you spend will not count toward your deductible.
- If you use the MSA to pay for something else, such as a car repair, you will pay a penalty plus you will pay taxes on the money you used.
Costs for a Medical Savings Account Plan
You won’t pay a monthly premium for a Medical Savings Account plan, but you must still pay the monthly Medicare Part B premium.
Your out-of-pocket costs will vary depending on the plan you’re enrolled in and the way you spend the money in your Medical Savings Account. Different plans will have different deductibles, and the amount of money Medicare deposits in your account will also vary.
For example, you might have an MSA plan with a $4000 deductible and Medicare depositing $2500 into your MSA each year. If you spend the entire $2500 on Medicare-covered medical expenses, you will have met $2500 of your deductible. If you have additional medical expenses, you would have to spend $1500 of your own money before Medicare would begin to pay.
Now suppose you have the same plan, but you spent the $2500 in your MSA differently: $1500 on the dentist and $1000 on medical expenses. Only the $1000 counts toward your deductible, so you would have to spend another $3000 on medical expenses before your deductible is met and Medicare begins to pay.
Once you have reached your deductible, however, the MSA plan will pay for all services covered by Medicare.
Advantages and Disadvantages of MSA Plans
One of the biggest advantages of MSA plans is that if you don’t use the money Medicare puts into your MSA, it rolls over to the next year. Money in the plan also earns interest. If you’re healthy and do not have a lot of medical expenses, you can spend what you need and save the rest to cover your medical costs in future years.
However, MSAs are not for everyone.
- MSA Plans may not be available in your area. As of 2018, only about 5,000 Medicare Advantage enrollees are in MSA plans. Only a handful of insurance companies offer them.
- You must be able to afford the deductible. Traditional Medicare plus a Medicare Supplement gives you a predictable premium each month. An MSA plan has lower premiums but can leave you with a big medical bill to pay before you reach your deductible. It’s important to be aware of the potential costs and be prepared to pay them.
- MSAs do not cover prescriptions, but there may be add-on coverage available for vision and dental. You can buy a standalone Medicare Part D prescription drug plan if you choose an MSA plan.
- You cannot get a Medigap, or Medicare Supplement, plan to cover your out of pocket costs. Medigap plans are only available if you have traditional Medicare, not if you have Medicare Advantage.
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