On Medicare’s Medical Savings Account (MSA)
If a Medicare Medical Savings Account, an MSA, is available in your state, it is already or soon will be an indispensable arrow in your product quiver. Here’s why: an MSA constitutes a 3rd major category of Medicare products to offer your prospects and clients, each category exhibiting different pros and cons. If you have all three arrows, you will be able to offer Medicare Supplements featuring higher premiums and lower cost sharing, ordinary Medicare Advantage plans featuring lower premiums and higher cost sharing, and MSA’s, the only type of plan where your clients will receive and likely keep dollars that the government gives them to spend on healthcare. The dollars they do not spend this year become available to spend on next year’s health issues or to place in special investments.
In broad strokes, an MSA works like this. Through a private-sector insurance carrier, the government deposits a couple or several thousand dollars into your client’s MSA bank account to use with a high deductible health plan. The bank accounts are held at health banks—the type of bank that can assist with re-investing amounts of over two thousand dollars. The funds in the MSA account can be legitimately used for health expenses defined by two government agencies. The first definition is given by Medicare, which has a list of health procedures and products covered by Medicare Parts A and B. The second definition is given by the IRS in Publication 502 and other publications that your CPA can help you identify. The IRS lists health expenses that are qualified, which means that a health procedure or product can be paid for with the untaxed money from the MSA. Expenditures from an MSA account fall into three categories: (1) the Medicare-covered expenses count toward the deductible and are qualified to remain tax-free; (2) health procedures and products that are not recognized by Medicare, like having cavities filled, but are recognized by the IRS as qualified; (3) non-Medicare and non-qualified expenses that do not count toward the deductible, are not qualified and so will be taxed, and will have a 50% penalty imposed when taxes are paid.
Agents and beneficiaries have shown that they can be suspicious when an MSA first comes town. For example, one lady in Wyoming called the sheriff’s department because she thought it was too good to be true and consequently a scam. Well, it is not a scam. The government sees the MSA as a tool that can help contain the excessive costs of healthcare. The government supports the MSA program for several reasons that you may want to remember so that you can pass them on when others ask you questions. One reason is that healthcare consumers have developed a habit of not comparison shopping for health care. Another reason is providers have developed a habit of not working toward cost containment. These two habits compound each other’s effects, and lead to the out-of-control spiral we see in healthcare prices/costs. In other words, healthcare consumers are not price conscious, and healthcare providers are not cost conscious. MSA’s (and HSA’s) exert counter-pressure by establishing new habits among consumers, among Medicare beneficiaries. This is because having money that they control empowers Medicare beneficiaries to make their own decisions on how to spend their own money, decisions and spending that push providers toward price competition and cost containment. They are more likely to question provider information and decisions, and they are more likely to choose less expensive procedures.
MSA’s have their critics, and they often criticize Congress for passing MSA laws. Erik Paulsen, a former chairman of the Senate’s and House’s Joint Economic Committee responds like this:
HSA critics have argued that high-deductible plans discourage use, increasing health care risks; however, this assertion is not supported by evidence. Testifying on behalf of the American Benefits Council and Mercer, Ms. Watts explained that a recent study of 26,000 individuals shows HSA users had better health outcomes than those covered by a traditional preferred provider organization (PPO):
[W]e matched 13,000 individuals in the PPO with 13,000 enrollees in the HSA-eligible option who shared the same demographic and risk profiles at the start of the 3-year comparative period. [T]he HSA-eligible plan participants maintained their health status, while those in the PPO plan saw [on average] an 8% increase in identified health risks. This fact alone would seem to suggest that the HSA-eligible plan may have been more effective at helping participants mitigate the exacerbation of existing, or onset of new, medical conditions or health risks.
—The Potential for Health Care Savings: Can Health Savings Accounts (HSAs) Bend the Cost Curve? December 13, 2018
An MSA holds the attention of government decision-makers for another reason: it enables Medicare beneficiaries to accumulate a nest egg they can use to make copayments when their health really does turn south and after they have established new comparison-shopping and price-conscious habits.
Notice an assumption that underlies all these reasons: an MSA plan is not for people with predictable health problems, people who are too sick to accumulate a nest egg. People who know they are going to have health issues after the effective date should enroll in a typical MA-PD or a MedSupp. Well, this realization raises the question: who are viable candidates for MSA’s? Here is the list that we think makes sense:
- people who have used HSA’s before enrolling in Medicare
- travelers who cannot be bound to local provider networks
- exercise and fitness enthusiasts
- people whose chronic conditions are well controlled, e.g., high blood pressure can be controlled with medication
- people who live in rural areas with no other low-premium coverage with a cap on out-of-pocket costs
- people who are tired of paying high MedSupp premiums when they do not go to the doctor
Let me be a little more specific about the features of an MSA. Most are written into law. They include:
- a high deductible health plan which pays 100% after it is reached but nothing before that
- a bank account into which the carrier/govt deposits the annual dollar amount at the beginning of the year
- a $0 premium
- no prescription drug coverage, so a stand-alone PDP is required if a member wants drug coverage
- no provider network
- a member responsibility, which is the amount that a member pays after having spent the full deposit for the year and before the insurance carrier covers Part A and B expenses at 100%
- compensation is the standard Medicare-Advantage agent commission for your area
There are two outcomes for people who join. They can still have money in the account at the end of the year, and they can keep this money in the account to be used down the road. Or they can spend their entire annual deposit and have to pay out-of-pocket until they reach the deductible. I have illustrated these two scenarios below, first a favorable outcome and then an unfavorable outcome. The numbers are from a product available in 2019. The first scenario has an outcome favorable to the member while the second scenario has an unfavorable outcome. Based on overall Medicare spending patterns (not MSA spending patterns in particular), a good guess is that approximately 80% of beneficiaries will have a favorable outcome while 20% will have an unfavorable outcome.
|$4,180||Max member risk/responsibility|
|-$700||Actual annual cost|
|+$1,820||Amount rolled over to be available next year|
Here is the unfavorable outcome after a car accident or a heart attack.
|$4,180||Max member risk/responsibility|
|-$10,000||Actual annual cost|
|-$4,180||Max that will be paid by beneficiary|
|$0||Amount available to rollover to next year|
Although reaching the deductible does not occur in the majority of the cases, when it does occur, a member reaches the deductible much quicker than beneficiaries reach maximum-out-of-pocket amounts on a regular MA plan. The speed is because an MSA member pays 100% of the Medicare approved amount for each CPT code until he or she reaches the deductible. This means that the beneficiary is not liable only for the Medicare Part A deductible when he goes to the hospital; instead, he is paying for each and every service. This will cause him to reach his deductible with even one night’s stay in the hospital. Knowing this leads agents to be cautious.
If you are doing your due diligence as you decide whether you want to offer this program, you may want to know the other concerns that agents had last year, the first year that the MSA from Lasso Healthcare appeared in many states. Below are two lists about the concerns of agents. The first list displays agent concerns from AEP in 2018:
- No Medicare eligibles have heard of MSA program, so why should agents or their clients trust the program or the companies that offer it?
- No one has heard Lasso Healthcare, so why should agents trust them?
- Providers have not heard of MSA’s or Lasso, so why should they accept them?
- The above facts will generate a lot of service issues during the first quarter of the year, and I do not have time for that
- The likelihood of a member having to suddenly pay the full member responsibility is too high
The second list displays what Lasso Healthcare has done to address those concerns:
- Lasso is telling people that MSA legislation and plans have been around for years and why large carriers do not want to offer such a plan (it cannibalizes HMO’s and PPO’s)
- Marketing activities continue to build Lasso’s reputation and you could be part of that effort
- Once providers find out that their contract with Medicare requires them to accept MSA’s, they begin to do so. All resistance was taken care of quickly.
- Service events that fell squarely on the shoulders of agents as opposed to the carrier were few and far between
- A lump-sum hospital indemnity plan will be available in most states where an MSA is available (some state DOI’s are dragging their feet)
On the whole, an MSA is a viable and important arrow to have in your quiver. It is the only plan where the majority of the beneficiaries are better off financially at the end of the year than they were at the beginning of the year.
Well, you may still be skeptical, so here is CMS’s own write-up of the plans, just so you can be sure:
We would enjoy answering your questions.