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What is a Medical Savings Account?

Busy senior couple in casual clothing taking care of their finances while bonding together at home. Medical Savings Account
Medical Savings Account (MSA) - If you’ve started looking at your Medicare options, you’ve probably stumbled across Medicare Advantage plans.

Medical Savings Account (MSA) – If you’ve started looking at your Medicare options, you’ve probably stumbled across Medicare Advantage plans. They’re becoming increasingly popular as more and more providers choose to accept them, and they become accessible to a larger part of the country.

A Medicare MSA is one of six kinds of Medicare Advantage plans. However, they work quite a bit differently than the other five options. Let’s review what a Medical Savings Account is, how they work, and who might be an ideal candidate for an MSA plan.

What is a Medicare Medical Savings Account plan?

Before you enrolled in Medicare, you might have had an HSA or Health Savings Account. If so, you’ll understand MSAs quickly. HSAs are available to individuals who are enrolled in a high-deductible health insurance plan, and they have helpful tax advantages.

HSA owners can contribute pre-tax money to their HSA account. (Their employers can also contribute funds, which many larger companies often do.) The money can sit in the HSA to be used as cash, or the owner can choose to invest it in whatever investment options are available in that particular HSA. Investments will grow tax-free. The funds can also be used on any qualified medical expenses – again, tax-free. You can use them for doctor’s visits, lab tests, prescriptions, etc. The complete list of qualified expenses is long.

When you turn 65, you can no longer contribute to your HSA, but you can choose to use the funds for other non-qualified expenses. You’ll just pay the normal income tax rate if you spend the money on non-medical-related items.

An MSA is similar but is a more simplified version of an HSA.

If you enroll in a Part C MSA plan, you will have a high deductible. Most plans offer a deductible that ranges from $3,000 – $5,000 per year. In addition, they will usually deposit money into your MSA account. Typically, the higher your deductible, the more money they deposit. You can use this money to help pay the deductible, or you can leave it untouched in your account. You cannot invest the money, nor can you make any personal contributions. If you don’t use the funds, they will roll over in the following year.

The great thing about MSA plans is that most of them come with a $0 monthly premium.

Top view of manager explaing financial strategy to employee sitting at desk. Medical Savings Account
Some plans include prescription drug coverage, routine dental care, vision and hearing services.

How do Medical Savings Account plans work?

You must meet your MSA deductible before the plan begins paying for any services. You’ll need to pay any Part A and B deductibles, coinsurance costs, and copays that you incur, and all of these will count towards your annual deductible.

Once you’ve met that amount, the MSA plan pays for Medicare-approved services at 100%.

You’ll need to find out if there are any extra benefits that come with your MSA plan. Some plans include prescription drug coverage, routine dental care, vision and hearing services. If the plan includes these additional benefits, it might also have a higher premium.

If your MSA plan does not include prescription drug coverage, you need to enroll in a separate Part D plan. You can use the funds in your MSA to pay for all prescriptions.

Who should enroll in a Medicare Medial Savings Account?

Anyone who is currently enrolled in Parts A and B of Original Medicare is eligible to enroll in an MSA plan. However, MSAs are not ideal for everyone. Who is an ideal candidate for an HSA? There are several instances when an MSA is a good option.

If you are very financially secure and the higher deductible of an MSA will not be a detriment to your financial stability, an MSA is a viable option. The same is also true if you have amassed a large HSA account from a past insurance plan. You can use the funds in your HSA to help pay for the high deductible.

Medicare Advantage plans are not readily accessible in some of the more rural parts of the country. In those areas, most people’s only option is to enroll in a Medicare supplement (Medigap) plan. Medicare supplements offer excellent coverage but do come with higher premiums than Advantage plans. The premiums continue to increase with age, which causes them to become unaffordable to many older individuals. On top of that, Medigap plans require medical underwriting in most instances. So these older beneficiaries can’t just switch to a cheaper Medicare supplement.

An MSA can help in this situation. Unlike other Advantage plans, MSA plans are offered everywhere and can be used with any doctor. Plus, unlike Medicare supplements, they don’t require medical underwriting. Therefore, if someone is not able to afford their Medigap plan, an MSA is a good alternative. Yes, they’ll still have to pay the high-deductible, but that might be cheaper than their annual premiums, and some coverage is certainly better than no coverage at all.

If you’d like to learn more about Medicare MSA plans, we can help! Our Medicare advisors are here to answer your questions and make sure you know all your Medicare options. Contact us today to speak to one of our licensed insurance agents.

 

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