There are several policies designed to close your Medicare gaps and Medical Savings Accounts are gaining traction with consumers. These innovative insurance plans offer a great way to plan and save toward future health care expenses.
You must be enrolled in both Medicare Parts A and B to qualify. You must also live in the plan’s service area and redside in the US for more than 183 days a year. This plan will be in 26 states for 2020 with three different tiers available depending on where you live.
What’s a Medical Savings Account (MSA)?
MSAs fall into the category of Medicare Advantage plans. They combine a high deductible health plan with an IRS approved custodial savings account. They are approved and regulated by Centers for Medicare & Medicaid services – our federal government.
By CMS rules, these policies must be offered at no cost to the consumer – they have no premiums. You still pay your Medicare Part B premiums to the government, but MSA plans cost $0.
There are two moving parts: Your deductible and the insurance company’s contribution to your account. Deductibles and contributions will vary by state and region. For example, the deductible in Region 1 for 2019 was $6,700 and the contribution by the insurance company (Lasso in this instance) was $2,520. Subtracting one from the other makes the member’s responsibility $4,180 for the year.
At the beginning of each year the insurance company deposits funds into your MSA account. (If you enroll in the middle of the year, then those funds would be prorated based on the month of enrollment.) The deposits belong to you – not the insurance company. The funds are in a no-fee, interest crediting account with Optum Bank.
Once you’ve met the deductible, there is nothing more to pay. Like most Medicare Advantage (MA) plans, it would take a hospital stay or big health event to meet the deductible. But unlike most MA plans, you get a large deposit each year to apply toward your deductible and other Qualified Expenses.
It’s important to note that these are not Medicare Supplement insurance plans. They are similar in that they have no network restrictions, however. With a MSA qualified policy you can see any doctor or hospital that accepts Medicare. They are not HMO or PPO type plans. You benefit most by using doctors who accept Medicare assignment – which most do.
What Should I Expect From a MSA?
The first thing to know is that the insurance company’s contributions to your savings account are NOT a use it or lose it situation. The funds belong to you – it’s more a matter of how you choose to spend them. In this way, they work very much like a Health Savings Account.
Your funds roll over year to year and can be spent on a number of Qualified Medicare Expenses (QMEs) as defined by the I.R.S. You can spend your account on physician services, labs, scans & x-rays, hospitalization and a host of other Part A and Part B services.
All of these items would count toward your deductible.
You can also use them tax-free toward eye glasses, dental work, hearing aids, over-the-counter and prescription drugs. You can see a long list of QMEs here.
You should be aware that if you choose to spend your deposits on non-QMEs, then there can be a penalty and the funds would be taxed as ordinary income. So it’s wise to know your options. These funds are not designed to be spent on a vacation or new roof.
The yearly contributions made on your behalf are always yours. You cannot contribute additional funds to your account, however. Yearly contributions can only come from the insurance company, but you are in control of the funds.
Why Might I Enroll & What If I Leave the Plan?
Medical Savings Account Medicare Advantage plans are most popular with our well-organized clients who are familiar with HSA type policies. These consumers also tend to be in above average health and usually don’t have any anticipated health procedures upcoming. Those who might be planning a joint replacement – or something of that nature – might benefit more from a different type of Medigap plan.
And if you leave the plan, your remaining deposits stay with you. They do no belong to the insurance company. Should you leave mid-year, they can recoup a prorated amount, however. And should you have any funds in your account at passing, then they go to your named beneficiaries – much like a HSA or IRA account would.
Learn More About Medicare MSA Policies
For 2019 and 2020, our brokerage is working with Lasso to provide MSA policies in several states, including Ohio! There is more to know, so we’ll be happy to explain the details of this exciting new coverage.
You want to keep in mind that MSA plans, by rule, do not include Part D drug coverage, so that will be a separate expense. And if you’re concerned about the gap between the deductible and their contribution in the first year or so, then you might consider an inexpensive hospital indemnity plan as a stopgap measure.