We all know someone who is retired and needs help. You may be wondering about the different Medicare savings plans available. In this blog post, we will discuss what a medical savings account with Medicare is and how it can benefit you. Medical savings account with Medicare is a great way to save money on your healthcare costs. We will go over the different types of medical savings accounts and how they work. Are you interested in learning more? Then this blog is for you.
The Medicare Savings Account Plan Special Bank Savings Account
The savings account part of a Medicare MSA plan is self-managed like any other bank savings account. One main difference is that the account is funded with money from Medicare versus by you.
Medicare gives Medicare Advantage plan sponsors a set amount of money for each beneficiary covered by the plan. The plan then uses the money to pay the Medicare-covered portion of the plan member’s health care costs.
When you have a Medicare MSA Plan, the plan provider deposits the money it receives from Medicare into a savings account that you manage. You then become responsible for paying the Medicare-covered portion of your health care costs, instead of the plan. In effect, you must pay 100 percent of the cost for Medicare-covered services up to the plan deductible.
You may withdraw money from this account – tax-free – and use it to help pay qualified medical expenses. Qualified expenses are defined by the Internal Revenue Service (IRS). This includes costs for services covered by Medicare Part A and Part B and some other expenses.
The plan deposits funds from Medicare into your account at the beginning of each year. The amount can vary. Funds may earn tax-free interest or investment income, and the balance carries over year to year.
You may not deposit your own money into a Medicare MSA. Funds withdrawn and used to pay non-qualified expenses are taxed and a penalty is also applied.
The MSA High-Deductible Health Plan
In general, Medicare MSA plans:
- Cover all the services that Original Medicare (Part A and Part B) covers
- Allow you to see any provider that accepts Medicare
- Do not charge premiums; you continue to pay your monthly Part B premium to Medicare
- Do not include prescription drug coverage; you may buy a separate stand-alone prescription drug plan (Part D)
The high deductible is a key defining feature of Medicare MSA plans. The annual deductible may be more than the amount Medicare provides to deposit into the savings account. You need to be able to cover the difference if you use all the money in the savings account before the deductible is met. Sometimes you may want to have a backup plan. Like an Indemnity Plan.
Once the deductible is met, the health plan pays 100 percent of the cost for covered Medicare services. In effect, the deductible is the plan’s out-of-pocket maximum. All Medicare Advantage plans are required to set an annual out-of-pocket maximum.
Savings account withdrawals used to pay for services covered by the plan count toward the yearly deductible. You may use the funds for other qualified medical expenses, but those amounts will not apply to the deductible.
What Are the Negatives of a Medicare Savings Account Plan?
Like all health care plans, a Medicare MSA has some potential disadvantages.
You must pay the entire cost of services until you reach the deductible. This could be a problem if you have a lot of medical expenses or an emergency arises.
The amount of money in your account may not be enough to cover your costs. If this happens, you may need to pay the entire cost of services out of your pocket.
You are responsible for all the money in the account, even if you leave the plan. This is true even if you die or become disabled.
The interest earned on the account is taxable. Drug coverage is not also included with an MSA plan. You may have to purchase a separate drug plan.
In my opinion, I find the Medical Saving Account Plan is not a fit for most people going into Medicare. The reason is as we get older more things start to go wrong for us physically. So expenses can add up quickly and having coverage that can help with these unexpected costs is a huge cushion you would want to have. Give me a call and we can go over what option makes the most sense for you.
