Health savings accounts are trust accounts that consist of contributions by the customer and a trustee, typically an employer, that provide a reserve to pay medical costs not covered by the insured's primary insurance, which must be a high-deductible health plan. Medicare subscribers may not enroll in an HSA, but they may enroll in a medical savings account.
Health savings accounts were created to give patients more control over their medical expenses. Account holders may use HSA funds, which are tax-exempt, to pay medical expenses not covered by their health insurance as well as deductibles that must be met before health insurance kicks in. High-deductible plans might be chosen by employers to lower insurance costs or offered by high-risk insurers to keep premium payments low. Savings may be rolled over from year to year and may also follow the account holder who leaves one job for another.
The End of the HSA
Once you enroll in Medicare -- typically when you qualify for Social Security -- you may no longer make contributions to an HSA. Even if you delay collecting Social Security or enroll for only Part A of Medicare, this rule applies. The Affordable Care Act placed some new limits on HSA expenditures, but you may continue to spend from your HSA on medical expenses, including long-term care policies, costs not covered by Medicare Parts A and B, prescription drug coverage, and co-pays until your HSA is depleted.
Enter the MSA
The same insurance companies that offer private health insurance assume management of Medicare for many people by offering Medicare Advantage, Medigap and other policies. These plans -- and the companies that offer them -- vary from state to state, so you'll need to check with local insurance agents or an online source such as Medicare's Plan Finder. Companies that offer high-deductable Medicare Advantage plans might also offer Medical Savings Accounts, which work like HSAs to compensate for the high deductible. Although you choose the bank and direct payments from your account, only the plan makes contributions to the account.
What MSAs Don't Do
Medical savings accounts don't require a premium payment from Medicare subscribers, but they also don't build up as fast because the Medicare contribution is smaller than HSA combined contributions. They cannot be used with Medigap plans, which are designed to provide money to pay for uncovered costs. Not all companies carry MSAs, so you might have to check with several before finding one that offers the Advantage-MSA combination.
- Internal Revenue Service: Health Savings Accounts And Other Tax-Favored Health Plans
- IRS: Publication 502 -- Introductory Material
- Bankrate: How Health Care Reform Changes FSAs, HSAs
- Medicare Interactive: Health Savings Accounts (HSAs) and Medicare
- AARP: Can I Have a Health Savings Account as Well as Medicare?
- HSA Resources: Part III - Administrative, Procedural, and Miscellaneous: Notice 2004-50
- Medicare.gov: Medicare Medical Savings Account Plans
- Medicare.gov: Examples of Medicare Medical Savings Account (MSA) Plans
- PhotoObjects.net/PhotoObjects.net/Getty Images