In this week’s column, Phil Moeller, the author of Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs and co-author of the updated edition of How to Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security, looks at the pros and cons of Medicare medical savings accounts.
What is a Medicare medical savings account?
Medicare medical savings accounts (MSAs) are unique Medicare Advantage plans that nearly no one has, yet are poised to become more popular, thanks primarily to the rise of high-deductible employer insurance plans.
According to the Centers for Medicare & Medicaid Services (CMS), a grand total of 6,707 people were enrolled in an MSA as of May of this year, out of the nearly 61 million people now enrolled in Medicare (about 0.01%).
While Medicare enrollments are headed higher and higher as society gets older, MSA sales are only about half what they were in 2016 (although they are up sharply from only 3,040 three years ago). Only four insurers even sell MSAs and they are available in fewer than 20 states.
One of those four insurers is tiny Lasso Healthcare in Harrisburg, Pennsylvania. It is, to say the least, an outlier when it comes to MSAs and is literally betting the company that these plans will become much more popular.
What makes medical savings accounts attractive?
The reason, company leaders Jim Handlan and Craig Ritter said in a phone interview, stems from the soaring use of high deductibles in employer health insurance plans. In a report late last year, the Employee Benefit Research Institute said that the percentage of under-65 employees with such plans had risen to 46% in 2018 from only 17%.
These high-deductible plans are usually linked to a health savings account (HSA), which is funded with pre-tax funds from employees and employers.
More than 20 million people now have HSAs. These funds can be spent during a plan year or rolled over to the next year. If the funds are spent on qualifying medical expenses, they incur no taxes when spent, making HSAs unique among financial products in that both their funding and expenses escape federal taxation.
Further, proceeds can be placed in investment accounts and held there indefinitely, making them attractive retirement investment tools.
Medicare plans are not considered high-deductible plans, but MSAs are. MSAs also permit people to receive fee-for-care health services anywhere in the U.S. That’s the same as original Medicare, but different from other Medicare Advantage plans, which are based on care that is managed by private MA insurers, usually using networks that restrict coverage to participating doctors and hospitals in the plan’s local area. Despite that difference, MSAs are technically MA plans.
“It is basically catastrophic insurance,” Handlan said, and “much more like a self-directed plan” than a managed Medicare Advantage plan. The money deposited into a person’s account “is yours to keep” if you stay in the plan. “And it is portable and goes with you,” just like an employer-plan HSA.
Lasso’s leadership team believes that employee use of HSAs is paving the way for growing interest in Medicare MSAs as employees turn 65, retire, and “age into” Medicare. Lasso is now selling MSAs in 17 states (Arizona, Arkansas, Delaware, Hawaii, Illinois, Indiana, Kansas, Maryland, Mississippi, Montana, North Carolina, North Dakota, Pennsylvania, South Dakota, Texas, Utah and Wyoming). In 2020, it will add nine states (Georgia, Kentucky, Louisiana, Minnesota, Nevada, New Mexico, Ohio, Rhode Island and South Carolina) and the District of Columbia.
One example of an MSA plan
Lasso has designed a simple product. Customers who have Parts A and B of Medicare, and pay the typical monthly Part B premium of $135.50, are eligible for a zero-premium MSA from Lasso (all MSAs must be zero-premium plans). Once a customer signs up for the policy, Lasso deposits $2,520 into its version of an HSA, as part of its high-deductible plans.
Depending on where a person lives in its service areas, Lasso’s annual deductible is either $6,700, $7,700 or $8,700. Policyholders are responsible for all medical costs below the deductible, and Lasso will pay all covered expenses above that amount.
According to CMS, the highest allowable deductible for an MSA is $12,650 this year and will rise to $13,400 in 2020.
When a person’s savings account deposit is factored in, their maximum out-of-pocket exposure for health expenses in a Lasso MSA ranges from $4,180 to $6,180.
MSAs do not include Part D coverage, so people would need separate drug plans. However, they can use their health accounts to pay for drugs, as well as certain hearing, dental and vision expenses that are not covered by original Medicare. Lasso says its plans will pay the lesser of what health care providers charge or 100% of Medicare’s payment rates for any procedure that Medicare covers.
The maximum out-of-pocket exposure of a Lasso MSA compares favorably with Medicare Advantage plans. People with original Medicare and a private Medigap supplement plan also might find MSAs an attractive alternative.
Who’s buying these plans?
Further, unlike Medigap plans, access to MSAs is guaranteed every year. This might make them particularly attractive to disabled Medicare beneficiaries younger than 65. Right now, people 65 and older have guaranteed rights to Medigap plans when they first enroll in Medicare.
These rights mean that private insurers usually must sell them a Medigap plan and cannot charge them more money due to their health conditions. Disabled people generally do not have such rights, but they can get something very close to such protection from an MSA.
One unanticipated fan group, the company learned, is RV owners who like being covered while traveling anywhere in the U.S.
The company has sold plans to 1,500 customers seven months into its first year, Ritter said. Lasso hopes to double or triple its customer numbers during Medicare’s 2020 annual enrollment period, which extends from Oct. 15 through Dec. 7 for plans effective next Jan. 1.
I doubt that major private Medicare insurers are looking over their shoulders in concern about Lasso or other MSA sellers. And I grant you that these plans are not for everyone.
But for healthy Medicare enrollees with no chronic health conditions, an MSA plan can be appealing. I’d look at the fine print here, especially the plan’s annual deductible. But these plans could cover most routine medical spending for healthy enrollees and thus act as a less expensive way to insure against catastrophic health risks.
This question previously appeared on the PBS NewsHour Making Sen$e website.