The beneficiary chooses the level of benefit, meaning the amount of deposited money for the plan year.
What is an MSA?
MSAs function on a few basic principles.
A Medicare Medical Savings Account pairs a high-deductible Medicare Advantage plan with money deposited into a special bank account.
The insurance company deposits the benefit money into the member's special bank account.
The member decides how to spend, save, or invest the money.
Medicare A and B expenses from Medicare providers count toward the deductible. The member can use deposited funds, out-of-pocket funds, or both.
The three key components
The deposit, the deductible, and covered expenses out-of-pocket.
The deposit is money from Medicare placed into the member's special bank account. The deductible is the annual amount the member must satisfy before the plan starts paying covered Medicare A and B costs. Covered expenses out-of-pocket are the costs a member may pay before reaching the deductible.
Types of expenses
Expenses affect the deductible and tax treatment differently.
Medicare A and B Expenses
Examples include inpatient hospital care, doctor office visits, lab tests, and more. These can count toward the MSA deductible, can be paid with MSA funds, and are generally tax and penalty-free when qualified.
Other Medical Expenses
Some qualified medical expenses are not covered by Medicare, such as long-term care, routine dental cleanings, over-the-counter drugs, and certain ancillary benefits. They may be paid with MSA funds but do not count toward the MSA deductible.
Non-Medical Expenses
Non-medical expenses include food, groceries, rent, mortgage payments, clothing, electronics, and more. They do not count toward the deductible and may be taxable and penalized if paid from MSA funds.
Member control
The deposit is intended to help pay down the deductible.
Members choose what to ultimately do with deposited funds. Applying the deposit toward plan-covered expenses can reduce the personal funds needed to reach the deductible.