Medicare Advantage MSA Plans

checkmark Fact checked Contributing expert: Roseann Birch; Reviewed by: Leron Moore - Published: September 14, 2020

What You Should Know

  • 1 To help offset a high deductible, qualified seniors can add a Medicare Savings Account (MSA)
  • 2 An MSA plan is designed to help cover the expected out-of-pocket costs associated with a high-deductible Medicare Advantage plan.
  • 3 With an MSA Plan, any extra benefits are included with no monthly premium, and the amount of the deductible varies from place to place.
  • 4 An MSA plan offers all of the coverage of Parts A and B combined, along with additional benefits that may be available.

Medicare Medical Savings Account (MSA) plans are a combination of a high-deductible health insurance plan and a medical savings account. Funds are initially seeded by Medicare to off-set the costs for qualified medical expenses. Once the MSA funds are depleted, medical expenses are paid out of pocket until the maximum out-of-pocket deductible is met.  

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 seniors to use to pay for covered health-related expenses. There is no cost to seniors for the original deposit. The amount deposited is always less than the annual deductible, but seniors can make payments directly to the provider when the account is empty until the deductible is reached.

Advantages of a Medicare MSA Plan

For seniors who might struggle to pay the higher premiums on a traditional plan, high-deductible plans may offer a more affordable path to health care. An MSA helps to reduce the total costs, creating a Medicare plan that has several advantages, particularly for seniors with moderate to minimal annual health care expenses. 

  • The original deposit is not an out-of-pocket cost. Since Medicare provides the initial MSA funds, seniors have no added costs associated with enrollment.
  • Funds roll over each year. For seniors in good health, the ability to continue saving from year-to-year helps them grow 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 seniors 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 healthcare expenses, which can reduce seniors’ 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 an MSA Plan, a person must meet several eligibility requirements. First, the applicant must be enrolled in Medicare Parts A and B. Enrollment is automatic for those who start collecting Social Security at age 65. 

Medicare Part A, the hospital insurance benefit, is available at no premium for those who qualify for Social Security or Railroad Retirement Board benefits. Medicare Part B is the healthcare insurance plan, and it’s offered for a monthly premium. Seniors 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. Any Medicare-eligible senior can opt for an MSA plan during their initial enrollment period.

How much does a Medicare MSA Plan cost?

According to Medicare.gov, there are no premiums associated with an MSA plan. Instead, seniors continue to pay the standard premium for Medicare Part B, which is $144.60 per month as of 2020. The premium amount can vary based on income. MSA plans do not include prescription drug coverage, so seniors 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 from place to place. In the samples provided by Medicare, high deductibles are listed at $3,000-$4,000 per year. Once the deductible is met, seniors 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.

Who should get a Medicare MSA Plan?

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

Seniors who typically pay less than $1,000 per year in medical expenses — excluding prescription costs and premiums — have the opportunity to build a nest egg in their MSA accounts for future medical bills.

Those who can easily afford the gap between the MSA and the deductible 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 an MSA plan, seniors get the expanded benefits of a Medicare Advantage plan, without a premium hike or 20% copay.

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

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Contributing Expert:

Roseann Birch, Medicare Consultant

With experience in the insurance field since 1986, Roseann Birch is a seasoned Medicare consultant who is passionate in educating and guiding seniors through their Medicare and Medicare Advantage journey.

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Reviewed by:

Leron Moore, Medicare Consultant

With over 10 years of experience in the Medicare industry, Leron Moore has dedicated his career to effecting change, educating, informing, and resolving issues for Medicare patients and their families.