What Are Medicare Advantage MSA Plans?
Some insurance providers offer Medicare Advantage plans that include a special kind of savings account. These are called Medicare medical savings account (MSA) plans, and they work a little differently.
Just like Health Savings Account (HSA) plans offered by employers or the health insurance Marketplace, Medicare Advantage MSA plans combine high-deductible health plans with a medical savings account to cover healthcare costs.
In this article, we’ll cover what to expect from MSA plans and whether or not you should enroll in this type of Medicare plan.
Key takeaways:
Medicare medical savings account (MSA) plans are Medicare Advantage plans that combine a high-deductible health plan with a savings account—similar to an HSA.
You should carefully consider your healthcare costs before enrolling in an MSA. For people who need medical services more often or have a chronic condition, a Medicare Advantage MSA plan could end up costing you more.
Talk to a Chapter Medicare Advisor who can offer advice and help you compare MSA plans against your other Medicare options.
What’s included in a Medicare Advantage MSA plan?
Much like HSA plans, a Medicare Advantage MSA plan has two parts to it: a high-deductible health plan and a savings account. We explain each of these below.
A high-deductible health plan: You’ll have a high deductible with an MSA plan, and your plan won’t start paying its share of costs until you meet this deductible. You can either use your medical savings account to pay your medical expenses or pay your healthcare costs out of pocket. MSA annual deductibles vary by plan and provider.
Most Medicare Advantage plans are not MSA plans. That said, some standard Medicare Advantage plans have high deductibles.
A medical savings account (MSA): Every calendar year (or when your coverage begins if you just joined an MSA plan), your insurance carrier will add money to a medical savings account. You can use the money in this savings account for eligible medical expenses, including:
Doctor visits
Lab tests
Hospital stays
Copays and coinsurance
Medical procedures
Every medical expense paid for with your MSA account counts toward your yearly deductible. However, if you run out of funds in your savings account, you’ll be responsible for paying your medical bills out of pocket.
You’ll usually use a checking account or debit card to access your funds. If you join a plan in the middle of the year, your yearly MSA funds and deductible will be prorated.
How do MSA plans work?
MSA plans work differently than standard Medicare Advantage plans. With an MSA plan, you can choose your own healthcare services, providers, and facilities with no network restrictions. You have freedom in how you use the money in your medical savings account. This means that you can pay for medical services out of pocket when you want and use the MSA when you want.
Here are some important notes to understand about MSA plans before enrolling:
There is no monthly premium, but you must still pay your Part B premium.
MSAs don’t provide prescription drug coverage (Part D). You’ll have to join a standalone drug plan alongside an MSA plan.
Unlike standard Medicare Advantage plans, you don’t need to choose a primary care doctor, and you don’t need a referral to see a specialist.
The money in your account at the end of the year remains there, and you can use it for any healthcare expenses in the future.
Who should get a Medicare Advantage MSA plan?
MSA plans are not for everyone. If you need medical services often or have a chronic condition, a Medicare Advantage MSA plan could end up costing you more.
Below is an example of how the cost and benefits could work with an MSA plan.
| Cost type | MSA Plan Costs |
|---|---|
| Yearly deposit | $1,500 |
| Yearly deductible | $3,000 |
| Copay after deductible is met | $0 |
| Out-of-pocket maximum | $3,000 |
Let’s say you joined an MSA plan in January, and you needed an MRI scan in February. This visit ended up costing you $2,000. You use your MSA deposit to pay $1,500 and you pay $500 yourself. At this point, you’re still $1,000 away from reaching your deductible of $3,000. You’ll have to pay up to $1,000 out of pocket for additional medical services for the year. Once you’ve met the full deductible, your plan will cover 100% of costs for covered services.
By comparison, Original Medicare paired with a Medicare Supplement plan would save you more. If you had Original Medicare and a Medicare Supplement Plan G, you’d pay $240 for your Part B deductible and pay nothing else out of pocket for an MRI scan.
If you’re relatively healthy and you don’t need medical services that often, an MSA plan could be beneficial. However, having an MSA plan may not set you up for success long term, because you can’t predict your future health.
Enrollment restrictions for MSA plans
Only some people can join an MSA plan. You won’t be able to enroll in an MSA plan if:
You have health coverage that would cover the MSA plan’s deductible (like employer insurance)
You have health coverage from TRICARE, the VA, FEHB, or Medicaid
You live in a foreign country for more than 183 total days in a year
You’re enrolled in another Medicare Advantage plan
Do Medicare Advantage MSA plans include dental, vision, and hearing coverage?
All Medicare Advantage plans, including Medicare Advantage MSA plans, must provide the same level of coverage as Original Medicare. This doesn’t include routine services for dental, vision, or hearing care. Like standard Medicare Advantage plans, MSA plans may include these services as additional benefits, but plan details vary. For example, you may have to pay a monthly premium for the added coverage.
That said, you can use MSA funds to pay for dental, hearing, or vision care since they are qualified medical expenses. Since Medicare doesn’t cover these benefits, these costs won’t count toward your deductible.
Are MSA contributions tax deductible?
Your MSA contributions are tax deductible if you use them towards qualified medical expenses, which are medical costs defined by the IRS. Common qualified medical expenses include:
Doctor visits and services
Preventive care like screenings and vaccinations
Some medications
Medical supplies and equipment
Dental, vision, and hearing care
Mental health treatment
You’ll likely be taxed for withdrawals from your account. To avoid this, file Form 1040, US Individual Income Tax Return, and Form 8853 to report qualified medical expenses.
Remember that if you pay for a qualified medical expense using your MSA, it may not count toward your yearly deductible if it isn’t Medicare-approved. For example, bandages are a qualified medical expense, and therefore tax deductible if you use your MSA contributions to pay for them, but they won’t count towards your annual plan deductible.
While you can use the money in your MSA account for non-qualified medical expenses, it will be taxed as part of your income. Additionally, non-qualified medical expenses will be subject to a 50% tax penalty.
Did you know that your Medicare premiums are tax deductible? Certain conditions and restrictions apply.
It’s also worth noting that you should stop contributing to an HSA when you’re getting ready to enroll in Medicare. Otherwise, you could face tax penalties. Learn more about HSAs and Medicare.
Note: The content we provide on this page is for general informational purposes only and is not intended as personal tax advice. Always consult a tax professional if you need help understanding the tax deductions and advice that may be available to you.
Can I switch out of an MSA plan?
If you enrolled in an MSA plan for the first time, you can cancel your enrollment by December 15th of the same year. You may have to pay a portion of the most recent yearly deposit back to Medicare once you cancel.
You can leave your MSA plan during the Open Enrollment Period and return back to Original Medicare. In order to do this, you’ll need to contact your plan or call 1-800-633-4227 (TTY users should call 1-877-486-2048).
If you want to join a standard Medicare Advantage plan, you can only do so during the Medicare annual Open Enrollment Period, which occurs every year from October 15 to December 7.
Your MSA plan can cancel your enrollment if:
You receive coverage from Medicaid
You start health coverage from FEHB, TRICARE, the VA
You receive employer coverage that covers the MSA deductible
You move outside of the plan’s service area
Note: If you’ve joined an MSA plan, you can’t disenroll during the disenrollment period for Medicare Advantage plans (occurs between January 1 to February 14).
Should you enroll in a Medicare Advantage MSA plan?
MSA plans aren’t very popular. There are very few people enrolled in an MSA plan, and they are only available in a few markets across the country. That said, we can help you understand all the plan options available to you and weigh the pros and cons of each based on your specific healthcare needs.
We understand that every person’s healthcare priorities are different. A Chapter Medicare Advisor can help you compare MSA plans against your other Medicare options. Get in touch with an Advisor at 855-900-2427 or schedule a time to chat to review all your Medicare choices.