A Medicare Savings Account (MSA) plan is a type of Medicare Advantage plan. For these plans, a person pays a high deductible for a private insurance plan and also has a health savings account they use for meeting the deductible.

A person may enroll in an MSA to gain more freedom of choice in their healthcare selections.

Medicare Advantage is a bundled plan that includes elements of Medicare Parts A and B, and sometimes D.

In this article, we explain how MSA plans work and provide examples.

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.

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An MSA plan may provide freedom of choice in healthcare selections.

Most people with Medicare do not use an MSA plan.

The Kaiser Family Foundation estimate that 5,600 Medicare enrollees in the United States have an MSA.

Medicare introduced the concept of MSAs in 1997, but insurance companies did not make the plan available until 2007.

A person with an MSA has two components to their insurance plan.

Here, learn more about Medicare Advantage.

A high deductible health plan

The first part of an MSA plan is a high deductible health insurance policy. Under this plan, a person will need to meet a deductible before Medicare starts covering any medical costs.

This deductible will be much higher than the one for traditional Medicare, sometimes reaching thousands of dollars.

The medical savings account

The second part is the medical savings account. Medicare deposits money into a special account that a person can use to pay a deductible.

A person cannot add their own money into the account alongside Medicare’s contributions.

A person starts paying for all healthcare costs using the MSA. Once they meet their deductible, their health plan pays for 100% of their Medicare-approved healthcare costs.

A person must still pay their Medicare Part B premium.

Medicare requires that an MSA cover all aspects of Medicare Part A and Part B, including:

  • hospital stays and care in a skilled nursing facility under Part A
  • doctor’s visits and durable medical equipment under Part B

Sometimes, MSA plans have agreements with contracted medical providers. However, specific regulations mean that an MSA cannot restrict a person’s choice of healthcare providers.

Some Medicare MSA plans offer additional benefits, such as coverage for dental, vision, and long-term care. However, the benefits depend upon which plan a person chooses.

Some people prefer the predictability of an MSA and their ability to choose their own medical providers.

This type of plan also allows a person to know that they will spend a certain amount on a yearly basis.

This might allow them to reduce the number of surprise expenses and significant out-of-pocket costs outside the deductible.

One key exclusion from an MSA plan is prescription drug coverage, which Medicare Part D usually funds. The government requires that all people over 65 years of age have creditable prescription drug coverage.

If a person chooses an MSA for their Medicare benefits, they will need to sign up for a separate Medicare Part D plan. They can find available Part D plans online using the Medicare Plan Finder or by calling 800-MEDICARE (800-633-4227).

A person cannot have both an MSA and another health plan, such as Medicaid, Veterans Affairs benefits, or employer coverage.

We explain the difference between Medicare and Medicaid here.

Private insurance companies administer MSAs so there is a range to choose from.

The following is an example of potential MSA plans that a person may evaluate if they are considering this Medicare option:

  • Yearly MSA deposit: Plan A: $2,000; Plan B: $3,000
  • Yearly deductible: Plan A: $3,000; Plan B: $4,500
  • Payments after a person meets their deductible: Plan A: $0; Plan B: $0
  • Out-of-pocket maximum: Plan A: $3,000 (same as deductible); Plan B: $4,500 (same as deductible)

A person can also use the money in their medical savings account for other healthcare expenses that Medicare has not approved.

This means that although they can access the money for non-qualifying medical costs, these do not count toward the deductible.

This works in the following way:

  1. A person has $1,500 deposited into their MSA, but their deductible is $2,500.
  2. They visit their eye doctor’s office, which costs $250. They can use the money in their MSA toward the expense. However, Medicare does not traditionally cover vision services, and this money does not count toward their deductible.
  3. The person is still responsible for their $2,500 deductible, but only has $1,250 remaining in their account for the rest of the year.

A person has the option of withdrawing their money from an MSA. However, if they do take it out, they must pay a 50% tax penalty as well as income taxes on the withdrawal.

If a person does not use the money in the MSA by the end of the year, the remaining money rolls over into an account for the following year.

A Health Savings Account (HSA) plan is very similar to an MSA.

Both accounts involve having a high-deductible health plan.

An employer or private insurer can offer an HSA plan to a person under 65 years of age.

However, there are some minor, but key differences between an HSA and MSA. One example is in contributions. A person’s employer contributes to an HSA, or an employee can contribute on an individual basis.

When a person has an MSA, they cannot make personal contributions to the MSA.

However, making contributions to an HSA has greater variations, and is often based on the limits of the employer and individual.

Any person who qualifies for Medicare Parts A and B can also qualify for an MSA.

A person can sign up during their Initial Enrollment Period, which starts 3 months before their 65th birthday, lasts the whole of the birth month, and finishes 3 months after their birthday.

They can also enroll during Medicare Open Enrollment, which runs from October 15 to December 7 every year.

To find available MSA plans in a person’s coverage area, a person can call 800-MEDICARE or search for an available Medicare plan.

Because MSAs are relatively new plans and less popular than other Medicare Advantage options, they are not available in many regions.

Medicare MSA plans are a Medicare Advantage option that provides a more up-front approach to Medicare spending.

A person can save on qualified medical expenses by paying for them using non-taxable funds.

To find out about available MSA plans, a person can call Medicare, their State Health Insurance Assistance Plan, or contact an insurance company directly.