Some Medicare Advantage (Part C) plans offer the MSA feature. They have a lot of flexibility and allow you to choose your health care services and providers. Depending on your situation, it might be a good alternative. Let’s examine what it is and who it can benefit.
Two parts of an MSA
- A high-deductible health plan, which will cover your medical costs after you reach the deductible;
- A Medical Savings Account in which your MSA plan deposits money you use to pay for your medical expenses.
How an MSA plan works
- After you enroll in an MSA plan you open a bank account in a bank designated by the plan. You handle the savings account yourself.
- Your plan deposits a certain amount of money given to them by Medicare into your account. You are not allowed to deposit your own money into an MSA.
- This money earns interest in the account, and the money and the interest is tax-free. When you have Medicare-approved medical expenses, you use this money to pay for them.
- If you use the money for health care costs not covered by the plan, you must pay income taxes on that amount and a penalty fee.
When an MSA Pays for Medicare-covered Costs
The Medicare-approved expenses you pay for out of the account count towards your annual deductible; however, after you have depleted the money in the account you must pay for expenses out-of-pocket until your deductible is reached. Afterwards the plan will pay for all Medicare-covered costs.
- While you are paying out-of-pocket, doctors and services can’t charge you more than the amount Medicare has approved.
- Any unused money in the account rolls over to the next year, and you can use it for health care costs in the future. In addition, at the beginning of the next year your next yearly amount is deposited.
MSA plans cover everything that Original Medicare Plans A and B cover, and in addition often have extra coverage, such as dental, vision, and long-term care. However, they do not cover prescription drug benefits, so if you want this coverage you must enroll in a Medicare Plan D plan (PDP). You can use your MSA funds tax-free for your Medicare Plan D premium and co-payments, and your extra benefits, but only Medicare Plan A and B expenses count towards your deductible.
In conclusion, consider carefully if this type of plan might be the right one for you.
