What's the Difference Between an HSA and a Medicare MSA?

You might have noticed that the Medicare Medical Savings Account sounds quite similar to the popular Health Savings Account, or HSA. They are structured very similarly, but the MSA has some pretty phenomenal perks that the HSA does not. Also, they’re for different age groups.

What’s an MSA?

There are actually two kinds of MSAs – the Medicare MSA and the Archer MSA.

The Archer MSA is a predecessor to today’s HSA, but some people still have them.

What we’re really interested in today is the Medicare MSA, which is for individuals who are enrolled in Medicare.

Here are the four main highlights of the Medicare MSA:

• It’s $0 premium
• It comes with an annual deposit (historically $2,520 but that can change each year)
• There are no networks
• It’s a high-deductible plan

The biggest deal about the Medicare MSA is that you’re given an annual deposit. That’s right – free money is given to you for qualified medical expenses.

There’s $0 premium, which can save you a ton of money, especially if you’re used to a monthly premium (which most of us are!).

This plan comes with a high-deductible, which in Decatur has historically been $6,700, but that can change each year. The interesting part is that once you hit your deductible, the insurance plan covers all Medicare-approved charges. There’s no coinsurance or copays after you hit that deductible.

In a way, you can think of your MSA deductible as your out-of-pocket maximum, since that’s the most you’ll ever pay in a year.

What’s an HSA?

If you’ve ever had a high deductible health plan, you’re probably familiar with the Health Savings Account (HSA).

An HSA is a special savings account that can be used for qualified medical expenses, but you must have a high-deductible health plan (HDHP) to get one. The bonus of an HDHP is that it has a lower monthly premium than other health insurance options.

In order for a plan to be considered “high-deductible” in 2019, it must have a minimum deductible of $1,350 for an individual and $2,700 for a family (IRS).

You’re paying out of your own pocket until you reach that deductible. Then, the insurance plan starts helping out. However, that doesn’t mean you’re off the hook – you still have coinsurance and copays.

Your real risk is your out-of-pocket maximum, or the most you’ll have to pay in a year. The 2019 limit for out-of-pocket maximums is $6,750 for an individual and $13,500 for a family.

As far as that HSA is concerned, the idea is that you put some money in there to help you with your out-of-pocket expenses. In 2019, you’re allowed to put in $3,500 to your HSA as an individual and $7,000 as a family.

The big advantage to an HSA is that your contributions are made with pre-tax dollars – you usually contribute to an HSA through payroll deductions at your employer. You can’t contribute to an HSA after you go on Medicare.

HSA vs. MSA: What’s the Difference?

Now that we have a basic understanding of an HSA and an MSA, let’s look at how they compare.

5 Main Comparison Points for the HSA vs. MSA

1. HSAs must be paired with a high-deductible health plan (HDHP), and MSAs are a high deductible health plan. In both cases, you’re dealing with a high deductible and some financial risk.
2. You’re the one putting money into your HSA. With an MSA, that money is given to you.
3. The HDHP you must have with your HSA is going to have a monthly premium (average of $442 per month as of 2013). The MSA is $0 premium.
4. HDHPs are network-based, meaning you want to see doctors in the network. If you don’t, you pay more. With the MSA, you can see any doctor that accepts Medicare and is accepting new patients.
5. In general, individuals who are working are going to be a great fit for the HSA. Once they retire, an MSA is an easy transition.
6. With HSAs and MSAs, you must use the money in your account for qualified medical expenses. These are outlined by the IRS in Publication 502.

The MSA Is an Easy Transition for Retirees with an HSA

There are 23 million HSAs in the United States today. For those of us in the back half of the Baby Boomer generation, we’re used to accepting some risk to get a lesser premium in this very volatile world of healthcare.

We’re also used to putting our own hard-earned money into an HSA.

It’s not uncommon to hear people say they have $10,000 per year in premiums for a $5,000 deductible – PLUS they had to put $3,500 in an HSA.

By the time you add all that up, you’re looking at $18,000-$20,000 out of your own pocket before the insurance company pays a dollar. That’s why transitioning from an HSA to an MSA is such a beautiful and easy transition.

The MSA is $0 premium and will always be $0 premium (by law). You still have some risk – again, us Baby Boomers are used to that.

Plus the insurance company puts a deposit in our account on our behalf!

A lot of people are asking us if there’s a catch to this, and there really isn’t. In fact, many of the licensed agents in our own office are going to choose the MSA when they turn 65. That’s really saying something!

Ultimately, the money in your HSA is giving you the opportunity to take some chances going forward. You can offset your personal responsibility with the money in your HSA, but keep in mind you also are getting an annual deposit in your MSA!

For clients with an HSA, we recommend they utilize those funds before they utilize the MSA funds since the MSA funds have a higher interest-earning potential.

The HSA combined with the MSA makes for a perfect post-65 strategy.

Learn more:

• What Is a Medicare Medical Savings Account?
• An Introduction to the New Medical Savings Account (MSA) For Seniors
• How Can Medicare Advantage Plans Have $0 Monthly Premiums?

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