The Medical Savings Account (MSA) type of Medicare advantage plan has existed previously, but it will be new for many people. This plan is available in selected states including Montana, Utah, and Wyoming but not yet in Idaho, Oregon, or Washington. Before we delve into the mechanics of how the MSA plan works, let’s review the types of Medicare advantage (MA) plans.
Health Maintenance Organization (HMO): Members use a designated network of doctors. With some exceptions, it is not intended to be used out-of-network.
Preferred Provider Organization (PPO): Members have lower co-pays if they use in-network doctors, but they have the flexibility go out-of-network.
Private Fee for Service (PFFS): Members can use any doctor that accepts the terms and conditions of the plan. When MA plans ramped up in 2006, most plans were PFFS. As the years rolled on, the marketplace evolved in that most MA plans transitioned to either HMO or PPO plans. PFFS plans have virtually disappeared from the marketplace.
MA plans can be MA plans only, or they can be MAPD, which means that they have a prescription benefit incorporated into the plan.
There’s one more important distinction to make. If you have either an HMO or PPO Medicare advantage plan and also want prescription coverage, it must be built into your MA plan. That means that you have an MAPD plan.
If you have a PFFS MA plan without drug coverage, or an MSA plan, you have the option to add a separate, stand-alone Prescription Drug Plan (PDP). If you have an MAPD, whether is be of the PPO or HMO variety and decide to switch to an MSA plan, you will need to pick up a stand-alone PDP, as MSA plans do NOT have prescription plans built into them.
How does the MSA plan work?
The following description is generic, as the numbers I’m using for example purposes only. They are NOT specific to any given MSA plan, but rather they are to illustrate how an MSA plan works. The name of our fictitious company is Acme Health Plans or AHP for short.
Qualification: Your must be on Medicare Parts A and B and live in a county where the plan is offered.
Premium: The plans are typically zero premium.
Savings account amount: The plan deposits $2,400 into your medical savings account. Remember, this is NOT the actual amount of any given plan, but rather It is for illustrative purposes only.
Deductible: $7,400—Again, this is an illustrative number only and not the amount of any given MSA plan.
Let’s say you are starting your new plan January 1, 2019. AHP deposits $2,400 into your MSA debit card account. You can go to any doctor that accepts your plan. There are no networks. You can use your plan in-state or out-of-state.
Your doctor bills AHP, and that bill comes back to you, along with your explanation of benefits, and you pay it out of your debit card account. Let’s say Medicare approved $100 for your office visit. The $100 that you paid counts towards your deductible.
Let’s say that you have exhausted your $2,400 debit account. Now you are the hook for the next $5,000 out of your own pocket for medical expenses until you reach your $7,400 deductible. Once you have met your deductible, AHP pays 100% of your Medicare approved health care expenses for the remainder of the year. The cycle resets at the beginning of the year with a new deductible and a new deposit into your MSA debit card account.
Potential downside of the MSA plan: Yes, you could be out of pocket $5,000, and that will not be acceptable for many people. In summary, AHP fronts you $2,400. From $2,400 to $7,400 you are on you own.
Other important questions
Do I lose whatever remains in my debit account at the end of year? No. Any remaining balance accumulates on a year by year basis. It’s NOT a “use it or lose it” program.
If I leave the plan after two or three years, does AHP take back my debit account? No. The funds are yours. You can continue to use them for qualified medical expenses. (see below) There may be an administrative fee on your debit account after you have left the plan.
Can I use my funds for things that Medicare doesn’t cover such as dental or vision? Yes. You can use your funds for IRS qualified medical expenses (QMEs).
Examples of QMEs:
- Co-pays for your prescriptions
- Hearing aids
- Long term care expenses
Paying for your prescription plan premium from you debit account is not a QME.
Can I drop a Medicare supplement plan and sign up for an MSA plan? Yes. Make sure that you notify your Medicare supplement company that you are leaving their plan.
If I sign up for an MSA plan, can I choose a prescription plan of my choice? Yes. Remember, the MSA plan does not have a prescription benefit.
If I have another MA plan, can I switch to an MSA plan? Yes. Remember, if your MA plan is an MAPD, you will also need to pick up a stand-alone prescription plan to maintain your drug coverage.
Assuming you live in a state where the MSA plan is offered, you will have to determine if the plan is right for you. Consider the pros and cons. Please contact us for further information. End