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A Medical Savings Account is a brand-new type of Medicare Advantage plan now available in Minnesota for the very first time in 2020.

The Centers for Medicare and Medicaid Services (CMS) has partnered with private insurance companies to offer Medicare Advantage MSAs, plans which combine a high-deductible medical plan with an IRS-approved custodial savings account. They operate on 4 basic principles:

Who is Eligible to Enroll

When compared with other Medicare Advantage plans, there are additional restrictions to joining or leaving an MSA plan.

  • You must be enrolled in both Parts A and B of Medicare and continue to pay your Part B premium.
  • You must live in the Plan’s service area.
  • You must reside in the U.S. for 183 days or more during the calendar year.
  • You cannot have other coverage that would cover the MSA plan deductible, including benefits under an employer or union group, TRICARE, the VA, or FEHBP.
  • You must not be currently eligible for Medicaid.
  • You must not be currently receiving Medicare hospice benefits.
  • You must not have End-Stage Renal disease, unless you were enrolled with an Medicare Advantage plan that left Medicare and you haven’t yet joined another Medicare Advantage plan.

Low Monthly Premiums

MSA Plans do not charge a premium.  The monthly premium is $0.  (You must continue to pay your Medicare Part B premium.)

High-deductible Health Plan 

The insurance component of an MSA is a high-deductible health plan.  This deductible may be in the $7,400 range and may be satisfied with incurred Medicare-eligible expenses.  These are medically necessary expenses that qualify as eligible under Parts A and B of Medicare.  The annual “Medicare & You” publication outlines these benefits in detail which are subject to change each year. 

Member-owned Custodial Account 

The annual MSA deposit, currently in the $3,240 range, must be held in a qualified custodial account.  All MSA plan will have a mechanism for setting up your qualified account.  Your annual deposit from the Plan will arrive the first week in January via direct deposit.  Many accounts are also linked to a debit card for ease in paying medical expenses.  Your account may also allow you to invest excess funds to attempt to conservatively grow your pool of money for future medical expenses.  If you use any MSA finds during the year, you must file both IRS Forms 8853 and 1040, even if you are not otherwise required to file an income tax return.  Remember, you are not allowed to add any funds to your custodial account.

The funds deposited into your account can be used to pay for 2 types of expenses.

  • First, expenses that apply towards the MSA plan deductible. These are called Medicare-eligible Expenses.
  • And 2nd, expenses that do not apply towards the MSA plan deductible, but significantly broaden the scope of coverage. These are called IRS-deemed Qualified Medical Expenses. 

Medicare-eligible Expenses

Any medical expenses eligible under either Part A or Part B of Medicare will count toward satisfaction of the MSA plan’s deductible.

Medicare Part A covers medically necessary hospital stays and associated services:

  • Hospital care, including a semi-private room, hospital meals, and special services like intensive care
  • Drugs, medical supplies and medical equipment used during your inpatient stay
  • Lab tests and x-rays while an inpatient
  • Operating room and recovery room services
  • Some blood transfusions in a hospital or skilled nursing facility
  • Rehabilitation services, including physical therapy received through home health care
  • Skilled nursing facility care and part-time homebound care
  • Short-term nursing home care
  • Home health care services
  • Hospice services to manage symptoms and control pain for the terminally ill

Medicare Part B covers medically necessary doctor and out-patient visits including:

  • Doctor visits (including annual wellness visit)
  • Ambulatory surgery center services
  • Out-patient medical services
  • Some preventive care, like flu shots
  • Clinical laboratory services, like blood and urine tests
  • X-rays, CT scans, MRI’s, EKG’s, and other diagnostic tests
  • Durable medical equipment for use a home, like wheelchairs and walkers
  • Emergency room services
  • Skilled nursing care and health aide services for the homebound on a part-time or intermittent basis
  • Mental healthcare as an outpatient

IRS-deemed Qualified Medical Expense (QME)

Any QME listed in the current IRS Publication 502 as deductible is eligible to be paid from your MSA custodial account.  Publication 502 explains the itemized deduction for medical and dental expenses that you claim on Schedule A.  It discusses what expenses you can include in figuring the deduction.  Medical expenses include dental expenses, and in this publication, the term “medical expenses” is often used to refer to medical and dental expenses.

Medicare-eligible Expenses are also IRS-deemed Qualified Medical Expenses.  NOTE: only Medicare-eligible Expenses will count toward satisfying the MSA deductible.

What Are Medical Expenses?

Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.  These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.

Medical care expenses must be primarily to alleviate or prevent a physical or mental disability or illness.  They don’t include expenses that are merely beneficial to general health, such as vitamins or a vacation.

Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care.  Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.

Network of Healthcare Providers 

This MSA plan has no network of healthcare providers that you are required to use.  You are able to see any provider in the U.S. that is enrolled in Medicare and is accepting new patients.  In addition, you will be billed at the discounted Medicare fee-for–service rates, also referred to as the “Medicare-allowed amount”.

Prescription Drug Coverage

Since MSA plans not allowed to cover prescription drugs, you will most likely opt to enroll in a “stand-alone” Part D Medicare Prescription Drug Plan.  There may be dozens of plans to choose from in your area.  Be sure to select a plan that is most suitable and affordable.

SUMMARY

This new concept in Medicare Advantage plans offers Medicare beneficiaries a unique option to address the coverage of their health care needs.