Medicare Advantage offers Medical Savings Account (MSA) plans. The plans have high deductibles but also deposit funds into a specified bank account for a person to use toward healthcare costs.

Original Medicare is health insurance funded through the federal government for people aged over 65 and those younger than 65 with qualifying medical conditions.

As an alternative to original Medicare, some people choose a Medicare Advantage plan.

Private insurance companies administer the different types of Medicare Advantage plans available, including Medical Savings Account (MSA) plans.

This article will look at MSA plans, how they work, and their exclusions.

We may use a few terms in this piece that can be helpful to understand when selecting the best insurance plan:

  • Deductible: This is an annual amount that a person must spend out of pocket within a certain time period before an insurer starts to fund their treatments.
  • Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
  • Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.

a senior couple looking at bills to do with medicare advantage msaShare on Pinterest
Deductibles vary between different MSA plans.

A Medicare Advantage MSA is a Medicare Advantage plan with an MSA, and therefore consists of two parts.

High deductible plan

As with all deductibles, an individual must pay the amount in full before the plan covers eligible costs.

Once a person meets the yearly deductible, the plan pays all Medicare-approved services.

Deductible amounts may vary by plan.

Medical savings bank account

An MSA also includes a medical savings bank account.

The plan selects a bank and deposits a set amount of money into the newly created account at the start of each year.

The amount of money deposited varies by the plan chosen but is typically lower than the yearly deductible.

The funds deposited are tax-free and accrue interest.

The intended use of the funds is to pay for healthcare expenses, and eligible costs will count toward the plan deductible.

Individuals may also use the money for certain services not covered by original Medicare, such as dental and vision care, but these costs do not count towards the yearly deductible.

Any money not used by the end of the year will carry over to the next, so it is available for future healthcare costs.

Private insurance companies offer Medicare Advantage MSA plans. The plans must provide the same coverage as original Medicare, but different costs and rules apply.

Not all types of Medicare Advantage plans are available in all areas, and that includes MSA plans.

A person can enroll when they are first able to sign up for Medicare and are eligible for both Medicare parts A and B.

Individuals interested in an MSA plan can use the Medicare plan finder to determine availability in their local area.

Once an individual has found a plan that suits their needs, they should contact the insurance provider that offers the program. Enrolling is usually possible online, by phone, or by mail.

After enrollment, the plan selects a bank for the beneficiary and deposits a set amount of money.

Medicare rules require Medicare Advantage MSA plans to cover the same care as original Medicare parts A and B.

Some MSA plans also cover additional services, including:

  • Long-term care
  • Vision
  • Dental

Other benefits may be available and covered services may be specific to the company offering the plan or the area in which a person lives.

Medicare Advantage MSA plans do not cover prescription drug costs.

A person would require a Medicare Part D plan to cover prescribed medication costs.

Exclusions limiting enrollment also exist.

Individuals cannot join an MSA if they have other types of health insurance, such as Veterans Affairs benefits, Medicaid, or Federal Employee Health benefits.

In most cases, a person would also be ineligible if receiving hospice care or if they have end stage renal disease.


Some rules apply to medical savings accounts.

  • An individual cannot deposit their own money into the account.
  • If a person spends all of the money in their account, they must pay out of pocket until meeting the deductible.
  • Only the named account holder is allowed to use the money.
  • When a person uses money from the account, they must complete a form to advise how they spent the money. The form is submitted when filing taxes.

The costs associated with a Medicare Advantage MSA plan differ since deductibles and deposited funds vary.

Individuals do not pay a monthly premium for the plan, but they will continue to pay their Part B premium every month.

Tax implications

The money contributed by an MSA plan is not taxed if the enrollee uses it to cover qualified medical costs.

Qualified medical costs include Medicare-approved Part A and Part B services.

If a beneficiary uses the money for anything outside of medical costs, the federal government taxes the withdrawal as income, and an additional tax penalty of 50% applies that a person must declare on tax form 8853.

Different types of Medicare Advantage plans are available to eligible individuals.

Medicare requires all plans to provide the same coverage as original Medicare, but costs and rules may differ.

Other plan options include the following:

Health Maintenance Organizations: This plan provides coverage for hospitals, doctors, and specialists in a specific network. Enrollees must choose a primary care doctor and usually need a referral to see a specialist.

Preferred Provider Organizations: With this option, individuals may see any provider, even someone out of their network, although it may cost more. Beneficiaries also do not need referrals to see a specialist.

Special Needs plans: This plan limits membership. The program provides benefits to meet the needs of people with certain chronic conditions, such as HIV, cancer, and end stage liver disease.

The MSA plan is a type of Medicare Advantage plan, which is an alternative to original Medicare.

An MSA combines a high deductible plan with a medical savings account.

The plan deposits money into a specified bank account, and funds can be put toward medical expenses. The amount deposited is tax-free unless spent on items and services not related to medical care.

Plans vary, including deductible amounts, and the amount deposited by the plan provider.

A person can compare all Medicare Advantage plans available in their local area by visiting the Medicare website and using their helpful plan finder tool.