Retirement Planning

Medicare MSA Plans

I’ve previously discussed Medicare and the related alphabet soup. I briefly mentioned Medical Savings Accounts (MSAs), which are a relatively new feature of Part C plans. As a reminder, Part C or Medicare Advantage plans are administered by private insurance companies, requiring all participants to follow the rules of the insurance company which include seeing providers in a network that can change at any time, obtaining prior authorization for certain medical procedures and services, and paying deductibles, co-pays and coinsurances up to an out-of-pocket limit. These plans look a lot like plans most of us have through our employers or those we obtain privately. 

Medicare MSA plans are an option offered through the private insurance companies similar to a Health Savings Account (HSA). An HSA is an account where you can put away pre-tax dollars that can be invested and grow tax-free as long as the funds are used for qualified medical expenses. Importantly, HSAs are not offered through Medicare and are only available to those with high deductible health plans. 

MSAs combine a high-deductible insurance plan with a medical savings account that you can use to pay for health care costs. A high deductible plan results in you paying most, if not all, of your medical costs up to a high deductible amount, which varies by plan. You receive deposits into your account from the Medicare MSA Plan. You can use the funds deposited to pay your health care costs before you meet your deductible. As always, the devil is in the details. The money deposited into your account represents only a fraction of the high deductible amount so you will be paying for medical expenses out of pocket, on top of your Part B premium. Note, MSA plans don’t charge a premium. The funds deposited into your account can carry over from year to year so if you have few to no medical expenses over the course of a couple of years you could build up a reserve. It appears a plan like this might be appropriate for someone who is in relatively good health with few expected medical expenses. 

Medicare MSA plans cover the Medicare services that all Medicare Advantage Plans must cover. Some Medicare MSA plans may cover additional services such as dental, vision, hearing and/or long-term care not covered by Medicare. Importantly, MSA plans don’t cover Part D prescription drugs so if you end up joining a Medicare MSA Plan you will have to join a Medicare Prescription Drug Plan if you need drug coverage. 

The important take-away from this is not all MSA plans have the same features. It’s important to carefully evaluate various plans and to consult with an experienced Medicare insurance advisor.