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NAIFA Supports Life Insurance Awareness Month

A Medicare Savings Account (MSA) is a type of Medicare Advantage plan with several unique attributes that financial advisors might find quite suitable for some clients. Like any other kind of health insurance, it is not for everybody, and there are certain people who are specifically excluded from these plans. If you have a client who is comfortable with investing and handling money, the MSA provides flexibility options unique in the Medicare market. There is both complexity and nuance to MSA’s. As always, this is a general overview and not designed to promote one company’s MSA plan over another.  Always contact the MSA plan or a broker knowledgeable about them to ensure it is available in your area and appropriate for your client.

An MSA is a high deductible Medicare Advantage Plan without Prescription Drug Coverage (MA). As a result, the Medicare Marketing Guidelines apply. Sales agents and brokers must be certified and the Scope of Appointment rules must be followed. And of course, the client must live in the plan service area. However, eligibility is different on these plans from the normal MA plan. MSAs are primarily available for people in their Annual Election Period (AEP), or in their Initial Enrollment Period (but not for those turning 65 and on Medicare early). However, even during the AEP, someone who also has Medicaid in addition to Medicare is never eligible so long as they continue qualifying for Medicaid. Unlike almost every other MA plan, almost no Special Election Period (SEP) is allowed for mid-year enrollments. The T-65 trial right of disenrollment also does not apply, but the first year Medigap trial right does. Basically, in most cases, the only two times you can get into and out of an MSA are when you turn 65 and are new to Medicare, or the date is October 15-December 7.

This is NOT a Medicare Supplement, but does have one important thing in common with them; people in MSA plans may see any provider who accepts Medicare. If you have a client who travels, is picky about their doctors, or just simply wants the maximum freedom of choice, the MSA plan is the only type of Medicare Advantage plan that provides the same level of flexibility as a Medicare Supplement will.  

That’s the basics. Now here’s where the fun begins for financial advisors. First off, this type of plan allows your clients to choose a standalone Part D Prescription Drug Plan. If you have a client with expensive, hard-to-cover drugs, they will get the same flexibility in choosing a Part D plan that their Medigap counterparts get. Not taking a Part D plan or having any other creditable drug coverage in force will cause a penalty if you don’t add coverage to your MSA.

This is a high deductible medical plan. Meaning, just like in major medical, the insurance company will pay nothing until the deductible is met. After which time, it will pay 100% of all Medicare-approved expenses. The MSA comes with a savings account. If this sounds very similar to the Health Savings Accounts (HSA) for major medical people on group coverage or under 65, it is. There is one very important difference between these MSA accounts and the HSA accounts you may have been advising your client on: your client cannot make contributions to the account. The plan makes one large deposit into your client’s MSA account each year for use toward eligible expenses. Usually, the amount deposited is not equal to the total amount of the deductible. Your client will be able to choose if they use the deposited money towards an eligible expense or their own money. There is a significant advantage here for the right kind of client.  

If your client chooses to “bank” up the deposit and not use a portion of it that year, the money remains theirs and accumulates with that next year’s deposit. Theoretically, if the plan’s rules allow it, your client may be able to invest a portion of the accrued deposit for some better gains, should they not expect to use much of their MSA deposited money that year either. This gives your client an opportunity to have more MSA-deposited money available to them in the future when serious illness eventually befalls them. If they are responsible stewards of their money, they may be able to bank up multiple years’ worth of deductibles for the future when their health changes.

What are the downsides of MSAs? There are a couple. MSA plans have to be sold only to clients who are capable of making responsible health care decisions. As you already are aware, the IRS allows HSA deposits to pay for a lot of things that do not count towards major medical deductibles, thus depleting funds without reducing the deductible. The same thing can happen with MSA’s. Your client needs to know when and when not to use MSA monies (very similar, but not identical to HSA allowances for use).  IRS Pub. 502 explains in more detail what can and cannot be used. Additionally, the deductible can scare people into not seeking treatment, just as an HSA can. If you have a client that wants to put off something because of the potential costs, possibly to the detriment of their own health, then maybe a Medigap might be more to their liking, with its significantly lower deductible and non-networked allowances. Keep in mind when dealing with the retirement segment: those of Medicare age are more susceptible to life-threatening illnesses than younger people. There are “young invincibles” in Major Medical, there are no “Medicare invincibles.”

The client needs to have an understanding of how billing operates. The provider bills the MSA, which is expected to reduce charges down to “traditional Medicare A and/or B rates.” This means if Medicare would reduce a billed charge from $700 to an approved amount of $100, the plan would reduce the bill to the exact same amount: $100, in this example. This is where our clients get tripped up. The bill to them is not 80% or 20% of that $100 bill. The full $100 is what is assessed onto the plan, and if the client is still in the deductible phase, they must choose to use their own money or the MSA-deposited money to pay a full $100. And while Medicare would typically pay 100% of certain items leaving no coinsurance with your client, that is not the case with MSA’s. New COVID-19 tests, for example, are covered at 100% towards the deductible, meaning your client pays all of it if they haven’t met the deductible, and none of it if they already have met it.

The only other problem we encounter with MSA’s is their relative scarcity. They are not nearly as ubiquitous as a traditional Medicare Advantage HMO, PPO, or PFFS. So very frequently we have to explain to our clients they will have to educate their doctors how to bill the insurance companies. A minor inconvenience, but an inconvenience nonetheless. And speaking of inconveniences, when your client does their taxes each year, they will also need to file IRS form 8853 each year they have the plan.

We think the financial and flexibility pros outweigh the cons in these plans for the right person. If you have a client that wants to responsibly handle their healthcare dollars, this is worth a look. It is unique in an overrepresented, overadvertised marketplace. If your client cannot or will not use a provider network, or needs a more individualized prescription drug plan, then this may be the plan for them. For all these reasons, we believe the MSA plan is a hidden gem of a health plan that solves a number of problems when properly placed. If you are in the Medicare market, seek this out as an option for that suitable client. If you are not, then we recommend partnering with someone who is. A trusted colleague who can ask the right questions to help guide your clients to the best plan for them. The MSA can definitely be the right choice. Every time it is a good match, it is a strong and loyal match, with happy clients in a healthcare plan they love.

Elie Harriett is the co-owner of Classic Insurance & Financial Services Co. and a regular contributor to NAIFA's Advisor Today blog.

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