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An Introduction to MSA Plans

I just heard about this Medicare plan that the insurance company puts money into the account. What is this? How does it work?

A Medical Savings Account (MSA) plan is a type of Medicare Advantage plan available in limited areas. There are two parts to this plan.

  • A high deductible: The beneficiary must pay this deductible before the plan contributes anything. The amount of the deductible varies from plan to plan and year to year.
  • A medical savings account: The beneficiary sets up an account at a bank the plan selects. Unlike health savings account (HSA) plans, the beneficiary cannot contribute to a Medicare MSA. The Medicare Advantage plan decides how much money to contribute and deposits money into the account.  

Here are some things to know about MSA plans.

  • MSA plans are not available in every area of the country. However, they are becoming more popular.
  • Medicare has identified some groups, such as those with End-Stage Renal Disease (ESRD), that cannot join an MSA.
  • The beneficiary must have Medicare Parts A and B.
  • There is no monthly premium for an MSA plan. Some plans offer extra benefits, sometimes for an additional monthly charge.
  • Only Medicare-covered expenses count toward the deductible. 
    • Once the deductible is met, the plan covers all Part A and Part B expenses. 
    • As with any Medicare Advantage plan, a Medicare MSA covers costs beyond the out-of-pocket limit.  
  • A plan member can withdraw money from the savings account to pay the deductible and other qualified medical expenses, as outlined in IRS Publication 69.
    • The money in the savings account may not cover the entire deductible so the plan member may have to pay out-of-pocket until the deductible is met and the plan benefits take effect.
      For example, the plan contributes $2,540 to the MSA and the plan's deductible is $6,700. The plan member would have to pay $4,160 out-of-pocket, until the plan starts paying. 
    • The plan member must track withdrawals from the MSA and include IRS Form 8853, Medicare Advantage MSA Distributions, with the income tax statement.
    • Money remaining in the account at the end of the year stays in the bank account and can be used toward the next year’s expenses.
  • The plan cannot include drug coverage so the beneficiary must purchase a Part D stand-alone prescription drug plan. The beneficiary can use the savings account to cover out-of-pocket drug costs.
  • The plan may or may not have a network of contracted providers; however, the plan cannot restrict services to a network. A beneficiary can see any physician who will accept Medicare patients. 

Learn more about Medicare MSA plans

Last updated: 02-15-2021