Medicare Medical Savings Accounts Elude Enrollees

Medicare enrollees shopping for a “Medicare Medical Savings Account (MSA)” are coming up short in most states because insurers do not offer them.

   After a limited demonstration in 1997, the 2003 Medicare Modernization Act made MSAs a permanent option for Medicare enrollees.  The plans combine a high-deductible health plan with a medical savings account. Medicare pays insurers to deposit money into private accounts, and what is unused can remain in the private account and be rolled over for future health care spending.

Once an enrollee meets the deductible, the plan covers 100 percent of Medicare-covered services. While the plans may come with provider networks, and out-of-network care may cost extra money, they are the only option in Medicare that rewards low utilization.

A Google search found one state offering the plans:  Wisconsin.  Network Health offers a plan that comes with a $0 premium, $4,000 medical deductible, and $1,750 deposit into a private account for “qualified medical expenses.”  Withdrawals are not taxed.

Accounts Can Grow

MSAs are Medicare Advantage plans, which are managed by private insurance companies, and serve as an alternative to fee-for-service Medicare.  MA plans are often less costly as they do not require the purchase of a Medigap policy and often, a separate drug plan. Like MA plans, MSAs require beneficiaries to be enrolled in both Medicare Part A and Part B.

The funds in the accounts can add up, says Kansas State Senator Beverly Gossage (R-District 9), who is a licensed insurance agent and enrolled in an MSA when it was available in her state.

“I still have funds in my account,” said Gossage. “I personally liked seeing funds build in my MSA and had no trouble convincing a provider to accept it and to submit the claim, assuring them that the reimbursement rate would be the same as Medicare would pay.”

Gossage says she had a severe accident while on the plan.

“I was in Scottsdale and rushed to Mayo Clinic,” said Gossage. “Three days in hospital and five in a rehab facility, and then flew back to Kansas City to continue recovery and physical therapy. I met my $5000 deductible, using the funds in my MSA, so I paid nothing out of pocket.” 

Little Demand

The main reason MSAs are not more widely available is that there is no interest in them, says Matthew Fiedler, a senior fellow in economic studies on health policy at The Brookings Institution.

“Even when MSA plans were still more widely available, they attracted very little enrollment,” said Fiedler.  “For example, in 2022, MSA plans attracted only 11,000 beneficiaries, a tiny fraction of total Medicare enrollment, despite being available in 31 states.”

Fiedler says the MSA plans are less attractive than the alternatives.

“Many Medicare Advantage plans offer modest cost-sharing and integrated prescription drug coverage,” said Fiedler.

“With that as the alternative, a high-deductible plan without drug coverage—which is what MSA plans are—will often look pretty unappealing, even with the account contribution,” said Fiedler. “That may be particularly true if beneficiaries do not understand how the MSA works or expect (potentially correctly) that accessing the funds in the MSA will be a hassle.”

Lack of Profit Potential

There is another reason why MSAs are difficult to find, says Chad Savage, M.D., an internist, the president of DPC Action, and a policy advisor to The Heartland Institute, which co-publishes Health Care News

“I think insurance does not provide MSA plans as they would compete with their much more lucrative Medicare offerings,” said Savage. “Thus, they lose the motivation to offer them.”

Could MSAs save Medicare money by encouraging enrollees not to file claims to grow their accounts? Savage says MSAs could save money on multiple fronts.

“They would reduce the middleman- thus decreasing the amount that they take from each transaction,” said Savage.

“However, likely the most significant cost saver would be indirect by incentivizing market forces to constrain medical prices,” said Savage. “By empowering the patient to control the dollars spent on health care, there would be a demand to know prices and shop for medical care accordingly. Thus, by combining agency with transparency, we would gradually reform health care through incentives as service providers compete to meet the patient demands and away from the demands of the third parties.”

Saving Medicare Money?

Broader take-up of MSAs could cost Medicare more money, says Fiedler.

“Medicare pays MSA plans more generously than other types of Medicare Advantage plans, which suggests that broader take-up of these plans could increase federal costs,” said Fiedler. “Of course, there are other ways to reduce federal costs that (like MSAs) would involve raising enrollees’ cost-sharing obligations. But MSAs, as structured, are unlikely to save money.”

Should Congress Mandate MSAs?

Under the One Big Beautiful Bill, signed into law in July, consumers can now use health savings accounts to cover the costs of direct primary care (DPC).

“I’m under the understanding that MSAs fall under the same regulation through the IRS,” said Savage. “However, even if they are not, that should be easy to modify.”

DPC offers unlimited primary care visits for a low monthly fee. “Studies show DPC patients experience better outcomes and reduce total medical spending by about 20 percent,” wrote Savage in a recent commentary. “For seniors, that means improved access and affordability without adding new government programs or taxes.”

Legislators should understand why MSAs are not more widely available and address it, says Savage.

“Congress could mandate that any Medicare insurance provider must include an MSA option within their portfolio of products and market it equally,” said Savage.

AnneMarie Schieber ([email protected]) is the managing editor of Health Care News

Internet info:

“Medicare Medical Savings Accounts,” Medicare.gov.:  https://www.medicare.gov/health-drug-plans/health-plans/your-health-plan-options/MSA