Only
0.01% of the 61 million people enrolled in Medicare have an MSA. Here's why
that's about to change.
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.
Got a question of
your own about Medicare or Social Security?
Send it to askphil@considerable.com.
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.
Out of 61 million
people now enrolled in Medicare, a grand total of 6,707 were enrolled in an MSA
(about 0.01%).
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.
Employee use of HSAs
is paving the way for growing interest in Medicare MSAs as employees turn 65,
retire, and “age into” Medicare.
“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.
The three other MSA
insurers are Network Health (available
in Wisconsin), Security Health
Plan (Wisconsin) and MVP Health Care (New
York).
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.
MSAs do not include
Part D coverage. But people can use their health accounts to pay for drugs, as
well as certain hearing, dental and vision expenses.
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.
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