Understanding a Medicare Advantage MSA

Medicare Advantage MSA Definition

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A Medicare MSA Plan is an optional Medicare plan that offers features similar to a health savings account (HSA) but also has distinct differences. It has two components: a high-deductible Medicare Advantage plan and a medical savings account. Learn how Medicare MSA Plans work to see if this type of coverage is a good fit for you. 

Key Takeaways

  • A Medicare MSA Plan combines a Medicare Part C (Medicare Advantage Plan) high-deductible plan with a Medicare Medical Savings Account (MSA). 
  • The plan deposits money in a special bank account. You can use this money throughout the year to pay for qualifying health expenses, including health care costs that aren’t covered by Medicare. 
  • If there’s any money left in the account at the end of one year, you can leave it there and use it for qualifying medical expenses the following year. 

What Is a Medicare Advantage MSA?

A Medicare Medical Savings Account (MSA) Plan is a plan available to most people eligible for Medicare who live where these plans are offered. An MSA has two separate components: a medical savings account and a high-deductible Medicare Advantage plan (“Part C”).  This type of plan usually doesn’t have a network of providers, which allows you the flexibility to select the healthcare providers and services you prefer.

You’ll need to join a separate Medicare drug plan if you select an MSA plan because, unlike most Medicare Advantage plans, MSA plans don’t offer Part D prescription drug plans.

Each year, Medicare gives money to the private companies offering these plans. The plan then deposits that money into your medical savings account. You can use these funds to pay for qualified medical expenses, and funds can earn interest while they’re on deposit. Deposit amounts can change yearly, and you won’t pay taxes on the interest as long as you use those funds for healthcare costs.

You can use the funds for any qualifying medical expenses, even if Medicare doesn’t cover them. However, only funds used toward Medicare-approved Part A and Part B expenses count towards your health insurance plan’s deductible.

Unlike HSAs, you cannot deposit your own money into your MSA—you can only use the money your insurer deposits. If the funds in the account run out before you meet your health care plan’s deductible, you’re responsible for paying your medical expenses out of pocket until you meet the deductible. But any money that’s left at the end of the year rolls over to the next year.

Before you sign up for this type of plan, learn what amount is deposited and your plan’s deductible. This way, you can better understand how much you’ll need to pay out of pocket before your deductible is met. 

How a Medicare Advantage MSA Plan Works 

The first step to getting an MSA plan is to select a high-deductible MSA plan. You can do this when you first sign up for Medicare or during the annual open enrollment period between October 15 and December 7. You won't pay a monthly premium for your Medicare Advantage MSA, however, you must continue to pay your monthly Medicare Part B premium.

Your plan selects a bank to work with, so you’ll need to set up a special MSA with that bank. However, once you’ve set up that account, you can move the money to another bank’s savings account that works better for you. If you stay with the bank your plan selects, you’ll get a monthly account statement that tracks your expenses for you. However, if you move your deposit to another bank, you’re responsible to track your expenses.

Medicare-covered expenses that you pay before your deductible is met will count toward your deductible. But you can still use your MSA to pay for qualified medical expenses that aren’t covered by Medicare, such as vision and dental care. Those expenses just won’t count toward the deductible. Once your deductible is met, the plan will pay for all your Medicare-covered services.

Doctors who accept this type of insurance cannot charge you more than the Medicare-approved amount. 

You’ll need to document how you use the funds from your medical savings account by filling out Form 8853 when you file your taxes. This is because if you use the money for non-qualified expenses, you’ll pay income tax plus a 50% penalty on those withdrawals.

Medicare Advantage MSA Example 

Here’s an example of how this type of healthcare coverage works. 

Let’s say Mrs. Miller signed up for a Medical Advantage MSA plan. Her deductible is $3,500 per year, and the annual deposit to her medical savings account is $2,000. To meet her deductible, she’ll need to pay $1,500 of her own money and spend the entire $2,000 in her MSA on Medicare-covered services. Once the $3,500 deductible is met—which is also the same amount as her out-of-pocket maximum—the plan pays for all her Medicare-covered Part A and Part B services, and she won’t have any out-of-pocket expenses.

But Mrs. Miller isn’t entirely free of ongoing healthcare costs—she still has to pay the Part B premium, even after meeting her deductible. 

The Bottom Line

A Medicare Medical Savings Account (MSA) plan isn’t right for everyone. But it might be a good fit if you appreciate the flexibility of choosing any Medicare-approved provider, and if you can afford to pay a high deductible before your coverage kicks in. Plus, the money in your MSA can earn tax-free interest and be rolled over to use the next year if you don’t spend it.

Just keep in mind that you’ll need to purchase a separate Medicare Part D drug plan if you choose a Medicare MSA plan and want drug coverage. This means you’ll also need to pay the Part D premium and should be aware of the late enrollment penalty you may have to pay if you go without creditable drug coverage for 63 days or more.

Article Sources

  1. Centers for Medicare and Medicaid Services. "Fact Sheet on Medicare Medical Savings Account (MSA) Plans," Page 1. Accessed Jan. 25, 2022.

  2. Medicare.gov. "10 Steps To Use a Medicare MSA Plan." Accessed Jan. 25, 2022.

  3. Centers for Medicare and Medicaid Services. "Medicare & You 2022," Page 83. Accessed Jan. 25, 2022.