What you should know
  • To help offset a high deductible, qualified seniors can join a Medicare Savings Account (MSA)
  • A MSA plan is designed to help cover the expected out-of-pocket costs associated with a high-deductible Medicare Advantage plan.
  • With a MSA Plan, Medicare-covered benefits are included with no monthly premium, and the amount of the deductible varies depending on where you reside.
  • A MSA plan offers all of the coverage of Parts A and B combined, along with additional benefits that may be available. You may pay a premium for extra benefits.

Medicare Medical Savings Account (MSA) plans are a type of Medicare Advantage Plan that combines a high-deductible health insurance plan and a medical savings account. Funds are initially seeded by Medicare to off-set the costs for your qualified medical expenses. Once the MSA funds are depleted, you pay medical expenses until you meet the plan’s deductible.

What is a Medicare MSA Plan?

A Medicare MSA plan consists of two basic parts:

  1. A high-deductible Medicare Advantage plan
  2. A Medical Savings Account

An MSA plan is designed to help cover the expected out-of-pocket costs associated with a high-deductible Medicare Advantage plan. At the beginning of the year, the plan deposits funds into the savings account for you to use to pay for covered health-related expenses. There is no cost to you for the original deposit. The amount deposited is always less than the annual deductible, and you make payments directly to the provider when the account is empty until the deductible is reached.

Advantages of a Medicare MSA Plan

If you find it difficult to pay the higher premiums of a traditional plan, high-deductible plans may offer a more affordable path to healthcare. An MSA helps to reduce the total costs, creating a Medicare plan that has several advantages, particularly if you have moderate to minimal annual health care expenses.

  • The original deposit is not an out-of-pocket cost. Since Medicare provides the initial MSA funds, you have no added costs associated with enrollment.
  • Funds roll over each year. If you are in good health, the ability to continue saving from year-to-year helps you build a healthcare fund.
  • Contributions and covered expenses are tax-free. Any money used to pay for copays and other health care services is available with no tax penalty. This allows you to spend money on health care without the need to report the money as income.

Disadvantages of a Medicare MSA Plan

The major disadvantage of Medicare MSA plans is the high deductibles on these healthcare plans. Since the MSA doesn’t provide the full value of the deductible in a single year, a major health expense could be financially devastating. Another possible disadvantage is that contributions to an MSA can only be used for approved health care expenses, which can reduce your financial flexibility when faced with non-health emergencies. Using these funds for any other purpose can come with severe tax penalties.

Who is eligible for a Medicare MSA Plan?

To enroll in a MSA Plan, you must meet eligibility requirements. First, you must be enrolled in Medicare Parts A and B. Enrollment in Medicare Parts A and B is automatic if you start collecting Social Security at least four months before you turn 65.

Medicare Part A, the hospital insurance benefit, is available at no premium if you qualify for Social Security or Railroad Retirement Board benefits. Medicare Part B, the medical insurance benefit is available for a monthly premium. If you are eligible for Medicare, you can enroll in a Medicare Advantage Plan that combines the services covered by Medicare Parts A and B.

MSA Plans are a Medicare Advantage plan that combines Parts A and B with a high deductible and a health savings account to help with the deductible. You can opt for a MSA plan unless any of these apply to you:

  • You have health coverage that would cover the Medicare MSA Plan deductible. This includes benefits under employer or union retiree plans.
  • You get benefits from the U.S. Department of Defense ( TRICARE ) or the U.S. Department of Veterans Affairs.
  • You’re a retired Federal government employee and part of the Federal Health Benefits Program (FEHBP).
  • You’re eligible for Medicaid.
  • You have End-Stage Renal Disease (ESRD). However, even if you have ESRD, you can join a Medicare MSA Plan if both of these apply:
    • You’re a former enrollee in a Medicare Advantage Plan that left Medicare.
    • You haven’t joined another Medicare Advantage Plan.
  • You’re currently getting hospice care.
  • You live outside the U.S. more than 183 (total) days a year.

How much does a Medicare MSA Plan cost?

According to Medicare.gov, there are no premiums associated with an MSA plan. You pay the standard premium for Medicare Part B, which is $170.10 per month as of 2022. The premium amount can vary based on income. MSA plans do not include prescription drug coverage, so you may need to enroll in Medicare Part D to assist with medication costs.

An MSA plan offers all of the coverage of Parts A and B combined, along with additional benefits that may be available. For example, some MSA Plans include vision, dental, or long-term care insurance, none of which are offered through Original Medicare.

With an MSA Plan, any extra benefits will incur a monthly premium, and the amount of the deductible varies depending on where you live. In the samples provided by Medicare, high deductibles are listed at $3,000-$4,000 per year. Once the deductible is met, you have no more out-of-pocket expenses but are still liable for the Part B monthly premiums. With the money provided by Medicare, typical out-of-pocket expenditures are around $1,500 per year, not including copays for prescriptions.

How do I enroll in a Medicare MSA Plan?

Enrollment in an MSA Plan is relatively straightforward. Medicare provides a list of available plans in a geographic area. Once you’ve selected a plan, you will need to open an approved savings account with a bank chosen by the provider. You won’t be officially enrolled until after the account is open. Once you have everything ready and have notified the provider that your account is open, you should receive a letter with your effective coverage date.

The provider will then deposit funds provided by Medicare into the account. Samples indicate that a $4,000 deductible plan might receive a $2,500 deposit to cover healthcare costs. You can’t add any additional funds to the account. Once all the funds have been spent, you must pay extra costs out-of-pocket until you reach the deductible amount. However, healthcare providers can’t charge any more than the Medicare-approved amount for services.

You can join a Medicare MSA plan either when you are first eligible for Medicare, or between November 15 and December 31 of each year during the Annual Election Period. Employer or union group members may be able to enroll or to disenroll during the year.

Who should get a Medicare MSA Plan?

Medicare MSA plans are a good choice if you are in good health and have the financial wherewithal to pay out-of-pocket for healthcare expenses.

If you typically pay less than $1,000 per year in medical expenses, excluding prescription costs and premiums, you have the opportunity to build a nest egg in your MSA account for future medical bills.

If you can easily afford the gap between the MSA and the deductible, you can also see significant savings by avoiding a higher monthly premium, since the high deductible is also the out-of-pocket maximum for MSA plans.

By enrolling in a MSA plan, you get the expanded benefits of a Medicare Advantage plan, although you may pay a premium.

Finally, if you struggle to pay monthly premiums, you may find it easier to handle healthcare expenses as they’re incurred and only pay for services used.

Medicare consultant

Roseann Birch has worked in the insurance industry for more than 35 years. In 2006, she moved to selling insurance and, by 2009, Birch made Medicare her area of expertise after observing the struggles of older adults to understand Medicare. Although many adults age 65 and older are eligible for Medicare, nearly just as many don’t understand how it works.

Birch has learned the ins and outs of Medicare and its variations and supplements to help beneficiaries and their families understand benefits. She finds there is often misinformation and makes it her mission to clear up the confusion so that everyone can enjoy the full extent of Medicare benefits.