Medical Savings Account

By: Agnus Smith
Published: Wednesday, July 25 2018
Last Updated: 4 years ago

With the rising price of health insurance premiums and medical care, it's good to have options to help cover the cost. That’s where Medical Savings Accounts come into play. At FirstQuote Medicare, our goal is to help you find coverage that fits your needs at a price you can afford. So, here’s what you need to know about Medical Savings Accounts.

What Is A Medical Savings Account (MSA)?

A Medical Savings Account (MSA), also known as an Archer MSA, is a tax-exempt retirement savings program created by the Federal government to reduce the burden of out-of-pocket medical expenses on retirees age 65 and older. Medicare MSA plans are used with a Medicare Advantage Plan. They're comparable to Health Savings Accounts (HSAs):

  • Requiring enrollment in a high-deductible health plan (HDHP)
  • Allowing you to withdraw funds after age 65 without being charged a penalty
  • Earning tax-free interest

The key difference is that Health Savings Accounts contributions are set annually, and individuals or families can put in up to 100% of the legal limit. With a Medicare Medical Savings Account, the minimum deductible for individuals is $1,700, and the family limit is $3,450.

The annual amount you can contribute to the Medical Savings Account is capped at 65% for individuals or 75% for a family. Health Savings Accounts can be funded through combined employer/employee contributions, but a Medicare Advantage Plan can only be funded by one or the other.

Brief History

The Medicare MSA program started at the state level but was expanded into a Federal program under the Health Insurance Portability and Accountability Act in 1996. It's administered under Medicare Part C through private insurance companies. Your Medical Savings Account will act as a trust to set aside cash to help pay for qualified medical expenses under your Medicare Advantage Plan after you turn 65.

Medical Savings Account Eligibility

Like most Medicare plans, it's designed to keep seniors and the disabled who qualify for Medicare from falling through the cracks when they have a fixed income and no other alternative for health insurance coverage. When used with a Medicare Advantage Plan, it provides more flexibility and choice over Original Medicare Part A. Medicare MSA accounts are meant to help the self-employed and those working for small or growing businesses save for the future.

Small businesses are defined as companies who permanently employed fewer than 50 employees in the previous two years. Growing employers are companies that met the definition of a small business before an expansion and:

  • Had fewer than 50 employees at the time they opened their medical savings accounts.
  • Made contributions that are excluded or deducted as MSA contributions during the last calendar year they had 50 or fewer employees.
  • Haven't expanded beyond 200 full-time employees in any year since their expansion.

You're not eligible to open a Medical Savings Account is you meet any of the following conditions, or if any of the following conditions occur after you open your Medicare MSA:

  • You already get Medicaid.
  • You're enrolled, or plan to enroll, in Federal Employee Health Benefits Program (FEHBP).
  • You receive TRICARE or Department of Veterans Affairs (VA) health insurance benefits.
  • Your employer- or union-provided health insurance plan permanently pay all or part of your MSA-covered deductibles.
  • You live outside of the plan service area.
  • You live overseas for more than 183 days per year.
  • You're currently in hospice care.
  • You have end-stage renal disease (ESRD).

If your account becomes canceled or you close it yourself, you'll be refunded the money in the account minus any expenses due for the remainder of that calendar year. You can still open a Medicare MSA as an individual even if your spouse doesn't have a high-deductible health insurance plan as long as you're not eligible for coverage under their insurance.

What Do MSA Plans Cover?

A Medical Savings Account can be used to pay for any allowable medical expenses not covered under original Medicare. It must still cover any care provided under Medicare Parts A and B with fewer restriction and rules. Medicare MSA plans also cover:

  • Dental
  • Vision
  • Hearing Care
  • Wellness Checks/Preventive Care
  • Future Hospice Care
  • Partial Costs from Eligible Clinical Studies
  • Newer Medicare Benefits
  • Long-Term Care not Covered by Medicare

Do Medical Savings Plans Cover Prescription Drugs?

No. Your Medicare Medical Savings Account won't cover Medicare Part D, which is prescription drug coverage. That means you have to obtain a separate, stand-alone Medicare prescription drug plan

Medical Savings Account Parts

Your Medicare Medical Savings Plan is divided into two parts. The first part is a special type of high-deductible Part C Medicare Advantage Plan, which only kicks-in once you meet your deductible. The second part is your Medical Savings Account itself. You draw from this account to meet your expenses until you reach your deductible.

High Deductible Health Plan

A High-deductible health plan is a specific type of Medicare Part C Advantage Plan that's designed to work with your Medicare Medical Savings Account. It allows you to access affordable health care by lowering premiums and other expenses in exchange for paying a higher deductible. Medical Savings Accounts are used to draw money from tax-exempt savings and interest accrued over time to meet those expenses.

Medical Savings Account

Browse our website or talk to a Medicare specialist to find a Medicare Medical Savings Account plan and contact that plan's provider. You'll receive an enrollment form and instructions to set up an account with an affiliated bank. Once your account is set up, your plan's provider will complete your enrollment. Medical Savings Accounts allow you to:

  • Claim contributions on your 1040, 1040NR, or 1099 form.
  • Exempt interest or any other earnings from tax liability.
  • Take your MSA with you if you change employers, and it isn't affected if you lose your job.
  • Roll over any unused funds from year to year.

How Do Medical Savings Plans Work?

Medical Savings Accounts are fairly straightforward. You choose your plan provider, and they will select the bank and amount of your annual contribution. The amount is typically lower than your deductible would be, and it earns annual interest at a rate determined by the bank.

Once you enroll in Medicare, you can access the money to pay for covered medical expenses. Any money you use for your Medicare-covered Part A or Part B services counts toward your deductible.

10 Steps For Medicare MSA Plan

  1. Select your high-deductible Medicare MSA Plan.
  2. Set up your account with the bank indicated by your plan provider.
  3. Medicare provides the plan with money each year for your health care expenses.
  4. The plan deposits money in your account.
  5. Withdraw money from the account to pay for health care expenses.
  6. If all of the funds in your account are used, you'll will have to pay out-of-pocket until you meet your deductible again before more funds are dispersed.
  7. Doctors are limited to how much they can charge during the out-of-pocket period.
  8. Once your deductible for that period is met, your plan will pay for your covered medical expenses.
  9. Any unused funds in your account at the end of the calendar year roll over for use in future years.
  10. Fill out IRS form detailing how the funds from your Medicare Medical Savings Account were used to access the money.