You may have heard of an HSA, a Health Savings Account. But did you know they’re also an option for those on Medicare? Today, we’re going to talk about a type of Medicare Advantage plan referred to as a Medicare Medical Savings Account, or MSA for short.
An MSA plan works similarly to an HSA, which have been very popular with individuals enrolled in an employer’s group health plan. Employees who choose to enroll in a high-deductible health plan (HDHP) are eligible to open an HSA. The HSA allows employers and employees to contribute tax-free dollars to a special savings account.
The HSA can be used to help pay the deductible and cost-sharing amounts or to purchase other qualified healthcare expenses. Money spent on qualified costs is spent tax-free. In addition, policyholders can choose to invest their HSA funds and have the earnings also grow tax-free.
HSA funds can be spent on other things, but you’ll pay a penalty on non-qualified expenses. Once the policyholder turns 65, funds can be spent on anything. Non-qualified expenses will be taxed at the regular rate, but no penalties will apply.
Let’s take a look at how the Medicare MSA compare’s the HSA.
Like the HSA, an MSA has a high-deductible, usually several thousand dollars. A typical MSA has at least a $5,000 deductible. Members must pay the entire deductible before coverage begins.
The nice thing is that the insurance company will often make an annual deposit to the MSA account. The deposit will never be enough to cover the deductible, but it will be helpful to the beneficiary. Typically, the higher the deductible, the higher the deposit. The member cannot choose to contribute funds themselves. Sometimes, there are investment options, but they may be limited. Unused funds will be rolled over to the following year.
Every MSA plan comes with a $0 premium. Insurance carriers are not allowed to charge premiums for these plans. Unlike other kinds of Medicare Advantage plans, most MSAs do not come with any extra benefits - they only offer coverage found in Parts A and B of Original Medicare. This means that most beneficiaries will need to enroll in a stand-alone Part D prescription drug plan, as well as any ancillary benefits they may want. Many people choose to enroll in a Dental, Vision, Hearing (DVH) plan, cancer insurance, and a hospital indemnity plan.
To enroll in an MSA, you must first enroll in Original Medicare. Then, you’ll need to live in a zip code that offers an MSA plan. Not every Medicare Advantage plan is available in all areas, and their benefits can vary from one county to the next.
MSAs are not a good fit for everyone, but there are a few instances when they’re a good option to consider.
People with stable finances. Individuals who are financially secure and won’t be greatly impacted by having to pay a high deductible are great candidates for an MSA. That’s also true if you are someone who has previously had an HSA and has funds to use. You can use both the MSA and the HSA funds to pay the deductible.
People who need lower premiums. While many Medicare Advantage plans have $0 premiums, not all beneficiaries have access to a wide variety of plans. People who live in rural areas are often best-served with a Medicare Supplement plan instead. These are great options that require very minimal out-of-pocket costs. The downside is that the premiums can get expensive and continue to increase as you age. An MSA can be a great alternative to a Medicare Supplement plan, especially when the deductible ends up being less than a year’s worth of premiums.
For example, it’s not uncommon for older Medicare beneficiaries to pay several hundred dollars for one of the more popular supplements, Plan G. Let’s pretend your monthly premium is $350. That would make your annual premium $4,200. If you can find an MSA with a deductible of $5,000 and a deposit of $1,00, you could actually save money by enrolling in the high-deductible plan!
Lastly, Medicare Advantage plans (including MSAs) do not require medical underwriting as Medicare Supplements do. If you do not have guaranteed issue rights to a supplement, an MSA may be your only option.
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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