What Is a Medicare Savings Account?

Learn everything you need to know about a Medicare Medical Savings Account and how it can help you.
By Mike Parker
Updated Jul 31, 2022
A man who has a Medicare Savings Account.
Why trust our opinion?

Our content follows strict guidelines for editorial accuracy and integrity. Learn about our and how we make money.

A Medicare Medical Savings Account (MSA) is a type of private healthcare plan that Medicare beneficiaries can join.

However, Medicare Medical Savings Accounts aren't as popular as other types of Medicare Advantage plans because there is some confusion around who qualifies for them and how they work. 

In this article, we’ll cover Medicare Medical Savings Accounts, what they cover, as well as the benefits and drawbacks of having one.

What Is a Medicare Medical Savings Account?

A Medicare Medical Savings Account is a private health plan that is offered by health insurance companies. 

The plan consists of two parts:

1) A high-deductible health plan which is a type of high-deductible Medicare Advantage Plan (Part C) that will only begin to cover your costs once you meet a high yearly deductible.

2) A medical savings account which is a type of savings account that allows you to deposit money into a special savings account so you can cover healthcare expenses. 

The amount of the deposit varies by plan and you can use this money to pay your Medicare-covered costs before you meet the deductible.

With Medicare Medical Savings Accounts, members are required to pay for medical expenses out-of-pocket until they meet the plan’s deductible.

For example, if their plan has a deductible of $2500, they must pay for all Medicare-approved expenses until they have spent that amount. Once a member has met their deductible, their plan will cover all Medicare-approved costs for the year.

MSA plans also come with a Medical Savings Account, which is a special bank account that is topped up with a set amount of money each year to help members cover medical costs. 

For example, a Medical Savings Account plan might have a $3500 deductible and a $1700 deposit. In this case, a person with this plan will need to pay $3500 for Medicare-approved expenses out-of-pocket before their plan covers all of their Medicare costs for the year. 

They will be able to use the $1700 medical savings account to pay for these approved costs. However, it’s important to remember that Medical Savings Account members still need to pay their Part B monthly premium.

For some Medical Savings Account recipients, these plans provide a method to stretch their money further when it comes to meeting the cost of their deductibles and co-pays.

An elderly man with a Medicare Savings account.

Source: Pexels

Terms You Should Know

Premiums: These are payments made to insurance companies in exchange for insurance coverage.

Deductibles: These are amounts that Medicare beneficiaries must cover before their Original Medicare or Medicare Advantage will cover qualifying medical expenses.

Coinsurance: This is the portion of costs that beneficiaries must pay for medical treatments, services, and tests. For example, with Medicare Part B, the coinsurance rate is 20%.

Co-payment (co-pays): This is a fixed amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs (Part D).

How to Use a Medicare Medical Savings Account

Although Medicare Medical Savings Accounts aren’t as popular as other Medicare Advantage plans, they can be beneficial for certain people.

If you are considering signing up for a Medical Savings Account, follow these steps:

1. Choose, join, and set up a Medicare Medical Savings Account Plan with a bank the plan selects.

2. Each year, Medicare pays the plan a certain amount for your healthcare and deposits some of the money into your Medical Savings Account.

3. You can use the funds in your account to cover your healthcare expenses, including those not covered by Medicare. 

Note: When you spend money from your account on Medicare-covered Part A and Part B services, it counts toward your deductible.

4. Once you have met your deductible, your plan will cover your Medicare-covered services.

5. After you receive your medical services and there is money left over at the end of the year, it will be carried over to the next.

If you have a Medical Savings Account, Medicare deposits a fixed amount of money into the savings account at the start of each year, and the money that you put into your Medical Savings Account is tax-free. 

You can also make tax-free withdrawals from your Medical Savings Account as long as you spend it on Medicare-eligible expenses.

Once your annual deductible has been met using the Medical Savings Account, the rest of your Medicare-eligible healthcare costs are covered until the end of the year.

Vision plans, hearing aids, and dental coverage are offered if you decide to pay an additional premium. You can also use the Medical Savings Account for other Medicare costs.

A Medical Savings Account does not automatically offer prescription drug medication coverage, known as Medicare Part D. You can purchase Medicare Part D coverage separately, and you can still use your Medicare Medical Savings Account to pay for prescription medicines.

What Are Medicare Advantage Plans (Part C)?

Medicare Advantage Plans, or Medicare Part C, are sold by private health insurance companies. These plans cover everything from Medicare Part A and Part B, and sometimes even prescription drugs.

Your monthly premium, deductible, coinsurance, and other costs will depend on the plan you choose. However, there is a set out-of-pocket maximum limit that all plans have to follow.

A person who gained access to their Medical Savings Account.

Source: Pexels

How Can You Access and Use the Money In the Medical Savings Account?

The bank that your Medicare plan ends up selecting will provide you with a debit or credit card to use with your Medical Savings Account.

For example, if you have a medical expense such as a co-payment for a doctor's visit, you can use the Medical Savings Account debit or credit card to pay for it.

However, some banks may prefer to use a checking account rather than a debit or credit card.

Other than co-payments for a doctor's visit, you can also use the Medical Savings Account for medical or nonmedical expenses.

It is important to remember that only Medicare-covered Part A and Part B services will count toward your deductible.

The money you put into your Medical Savings Account, as well as any interest you earn, isn't taxed if you use it for Qualified Medical Expenses.

The money in your Medical Savings Account will be taxed as part of your income if you use it for non-qualified expenses. It will also be subject to a 50% tax penalty.

What Are Qualified Medical Expenses?

Qualified Medical Expenses are the same services and products that could ordinarily be deducted as medical expenses on your annual income tax return.

Some Qualified Medical Expenses are also Medicare-covered services, such as doctor's visits, lab testing, and hospital stays. However, Qualified Medical Expenses, such as dental and vision treatment, are not covered by Medicare.

Only Qualified Medical Expenses for Medicare-covered Part A and Part B services may count towards your Medicare Medical Savings Account Plan deductible.

A person calculating how much they have in their Medical Savings Account.

Source: Pexels

What Is Covered by a Medicare Medical Savings Account?

Without meeting your annual deductible, you will not be able to receive any Medicare coverage for your associated costs, such as hospital care or outpatient healthcare.

You'll have to pay for Medicare-covered services out of pocket until you reach your plan's deductible if you spend all of the money in your account and have additional healthcare bills.

Doctors and other providers can't charge you more than the Medicare-approved rate while you're paying out-of-pocket for services before your deductible is met.

However, once a person reaches their plan’s deductible, their health insurance provider will cover all Medicare-approved costs for the year. Anything that would be covered by Original Medicare must be covered by a Medical Savings Account. 

Because Medical Savings Account plans are Part C plans, the network of doctors and healthcare providers may offer more than Original Medicare.

What Are Some of the Different Parts of Medicare?

Medicare Part A

Medicare Part A (inpatient coverage) has no limit to its out-of-pocket costs. This is because most people don't have to pay a premium for Part A. However, there are deductibles and limits on covered services.

Medicare Part B

Medicare Part B (outpatient coverage) works very similarly to Part A. You pay a monthly premium and a deductible, but there is a limit to how much Medicare will cover.

Part B also has no limit to how much you can pay out-of-pocket for what it doesn’t cover.

Medicare Prescription Drug Plans (Part D)

Same as Medicare Advantage, the cost of Medicare Part D (prescription drug coverage) will depend on the plan you choose.

However, with Part D, the out-of-pocket maximum is set at the "catastrophic coverage" amount, which changes annually.

A person paying for a cost that their Medical Savings Account does not cover.

Source: Pexels

What Is Not Covered By a Medical Savings Account?

A Medicare Medical Savings Account plan does not cover:

  • Cosmetic operations.

  • Holistic healthcare procedures.

  • Alternative medicine.

  • Nutritional supplements that aren't covered because they haven't been deemed medically necessary by a doctor.

However, on a case-by-case basis, physical therapy, diagnostic tests, and chiropractic care may be funded through your Medical Savings Account plan.

How Much Does a Medicare Medical Savings Account Cost?

If you have a Medicare Medical Savings Account plan, you will still be required to pay your Medicare Part B monthly premium.

You would also need to pay a premium to enroll in Medicare Part D. This is because the Medical Savings Account doesn’t cover prescription drugs — which is legally required coverage.

Once you've received your initial deposit, you can transfer the funds from your Medicare Medical Savings Account to a different financial institution's savings account. 

If you do this, you may be subject to the bank's minimum balance, transfer charge, and interest rate policies.

Withdrawing money for anything other than approved health expenses may come with penalties and fees.

If a person does not use the money in the Medical Savings Account by the end of the year, the remaining money rolls over into an account for the following year.

Finding Answers to All Your Questions

If you are unsure about your coverage or costs, feel free to get in touch with one of our professional consultants at help@policyscout.com or 1-888-912-2132 or visit PolicyScout today.

A piggy bank for saving money.

Source: Pexels

How to Become Eligible for a Medicare Medical Savings Account

There are two opportunities where you can enroll in a Medicare Medical Savings Account.

  • When you first sign up for Medicare Part B during your Initial Enrollment Period.

  • During the Open Enrollment Period which starts on October 15 and ends December 7 each year.

Some individuals who are eligible for Medicare aren’t eligible for a Medicare Medical Savings Account. 

You’re not eligible for a Medicare Medical Savings Account if:

  • You’re eligible for Medicaid.

  • You receive benefits from the U.S. Department of Defense (TRICARE) or the U.S. Department of Veterans Affairs.

  • You're a retired Federal government employee and part of the Federal Health Benefits Program (FEHBP).

  • You’re in hospice care.

  • You have an end-stage renal disease.

  • You already have health coverage that would cover all or part of the annual deductible.

  • You live outside of the United States for 183 days or more.

Where Can I Learn More about Medicare?

Medical Savings Account accounts can be confusing to understand, but they can still benefit you depending on your situation.

PolicyScout is here to help you understand your options and which Medicare plans are right for you.

If you're concerned about Medicare or want to learn more about the alternative options, contact one of our trained consultants for personalized help. Contact us at help@policyscout.com or give us a call at 1-888-912-2132.