Saving for Healthcare: MSA vs HSA
The rising popularity of savings accounts for your healthcare needs have many asking what type of plan is best for their situation. Although it might seem like the savings plans are similar, there is a distinct difference between a Health Savings Account (HSA) and a Medicare Medical Savings Account (MSA).
One thing to keep in mind is that while both the HSAs and MSAs can help reduce the cost of premiums, the plans are most beneficial to individuals who are healthy and want to control how they get coverage.
The HSAs are available to individuals and families with a high-deductible health plan (HDHP). The plans are usually paired with employer-provided or individual health plans. You cannot contribute to an HSA after you go on Medicare.
The Medicare MSAs are available to individuals on Medicare who are on a high-deductible Medicare Advantage Plan (Part C). MSAs are only available to self-employed individuals or for companies with fewer than 50 employees.
Both MSAs and HSAs can grow in your account without generating taxable earnings each year. You may be able to pay for healthcare with tax-advantaged dollars. Distributions may come out tax-free if you paid for qualified medical expenses. If they aren’t qualified expenses, you may have to pay taxes on the amount you withdraw.
Contributing to an HSA might reduce your taxable income. Employer contributions don’t qualify for a deduction nor are they treated as income. Medicare MSAs work differently in that you don’t contribute, your health plan does it for you.
Both plans give you the option to leave funds in the account to accumulate. There is no “use it or lose it” feature in either an HSA or MSA. That means you can either build up savings in the account for later use in life or use the money now. Many close to retiring are building up their HSAs in preparation for medical expenses later in life. Some providers call this “rolling over” funds for the next year, but there is no need to move it as the money is there until you use it.
In summary, HSAs are an option for those who have an individual or employer-provided health plan that has a high deductible limits (HDHPs). HDHPs typically have lower monthly premiums and higher deductibles.
Medicare MSAs are an option for individuals on Medicare. You may pay zero premiums if you use a high-deductible Medicare Advantage Plan, which means you have higher deductibles and up-front out-of-pocket expenses. Your healthcare plan deposits funds into your Medicare MSA, usually at the beginning of the year. You use the funds from your account to pay for qualified expenses until you reach your deductible and you may need to come up with funds on your own to pay for a portion of the expenses. Once you reach your deductible, the plan should pay for all of your Medicare-covered Part A and Part B health care costs.