Is a Medical Savings Account (MSA) Better Than a Medigap Plan?

Now that the new Medicare Medical Savings Account (MSA) is available for seniors ages 65+, many are wondering if they should switch from their Medigap plan (also known as Medicare Supplement plan).

The short answer is maybe. There is a place for both MSAs and Medigap plans, but our recommendation is always on a case-by-case basis.

If you’re not sure what an MSA is or how it works, we’ve put together a great introduction for you.

In sum, a Medical Savings Account is a $0 premium plan that combines high-deductible health coverage with a special medical savings account. You receive a deposit from Medicare in that special account ($2,520 as of 2019), and you decide what healthcare services to spend it on.

You can use that deposit towards your deductible, but you would be financially responsible for the remainder. Once you reach your deductible, the MSA pays 100% of Medicare-covered expenses.

Ask us about the new MSA plan

Who Can Get the Medical Savings Account (MSA)?

There are some basic guidelines you must meet in order to be eligible to join the new Medical Savings Account (MSA) plan. Those include being in a state where the MSA is sold. You can see a list of those states here.

[RELATED: This New Medical Savings Account is a Compelling Medicare Alternative]

You also much be eligible for Medicare, not eligible for Medicaid, and a few other basic requirements that an agent can go over with you.

Should I Get the MSA?

If you’re thinking about switching from your Medigap plan to an MSA, these are the factors that should we believe should play into that decision:

• How often you’ve needed medical care in the past 5 years
• How comfortable you are with some risk in exchange for a reward
• If you have a unique health condition that makes you uninsurable, but you’re still healthy in every sense of the word

These are the things that make the biggest difference for folks. Let’s go over those in more detail.

Your Health Is the Key

Your health is the single most important factor when considering a Medical Savings Account (MSA).

If you’re healthy and only go to the doctor for semi-annual or annual checkups, an MSA is probably the best fit for you. Here’s why.

Healthy individuals who are on a Medigap plan are paying a monthly premium whether they use the insurance or not. For many individuals, that premium can typically range anywhere from $1,200-$4,000 per year depending on a variety of factors including age, tobacco use, location, and gender.

This bothers a lot of people – even though a Medigap plan has the most comprehensive coverage out of any Medicare insurance product, it can be annoying to pay for a plan that you aren’t utilizing.

With an MSA, you don’t have any monthly premium. That’s an immediate financial difference of $1,200-$4,000 for those paying for a Medigap plan.

Then, you factor in the deposit from Medicare, which is $2,520 for January 1 of 2019. You can use that money for any medical services, and if those services are covered by Medicare, you’ll start making headway on your deductible.

Any money you don’t use from that deposit will roll over to the next year. This will continue indefinitely. It gets better – once you accumulate and keep $2,000 in the account, you can start earning interest on that money, which helps you grow that account even faster.

Risk vs. Reward

The biggest difference between a Medigap plan and this MSA is potential. With an MSA, you have the potential to accumulate funds that you can use towards a major health crisis in the future, or you can start growing that fund to pass onto your children when you pass.

You don’t have that kind of potential with a Medigap plan, though you do have better coverage with a Medigap plan.

The obvious issue here is that we don’t know what will happen to your health over the next year. If you end up having a heart attack in the next year, you’re on the hook for the difference between your deductible and the deposit. Depending on where you live, that could be anywhere from $4,180-$6,180.

So, that’s the risk you have to be comfortable with. Are you willing to accept that possible risk in exchange for the potential of growing a savings account? For some people, the answer is yes, and for others, the sure thing of Medicare Supplement is going to fit the bill better.

One way to help us make the recommendation is to take a look at how often you went to the doctor or hospital over the past 5 years. If you’re consistently only seeing the doctor for your annual checkup, an MSA is probably going to be a great choice. However, if you were in and out of the emergency room, a Medigap plan is going to be our first pick for you.

No Need to Pass Medical Underwriting

We recently met with a client who has osteoporosis. That’s really no big deal. However, she had a stress fracture within the last year. That makes her uninsurance in the eyes of Medigap companies.

Even though she’s completely healthy in every sense of the word except for this quirky condition, she’s uninsurable.

That means she’s stuck with her current Medigap carrier, which can be problematic. When you’re locked in and are unable to switch, you’re not able to shop the market. That means you have to deal with any major rate increases from your current Medigap carrier.

Her premiums were going up and up to the point where she was desperate for another option.

She is the perfect candidate for something like this. She’s perfectly healthy, which makes her confident that she won’t be subject to that financial risk we just talked about.

Since she can’t even consider a Medigap plan, that makes this MSA the best possible option for her.

MSA plans don’t have any health questions, which means you won’t be turned away for your weight, diabetes, osteoporosis, COPD, and so on.

Get the New Medical Savings Account (MSA)

Are you considering the new Medical Savings Account (MSA)? You’re able to choose this plan during the Annual Enrollment Period (AEP) which lasts from October 15-December 7 each year.

Don’t miss your window of opportunity, and speak with one of our licensed agents today.

We’ll go through the points we just laid out for you to see if we’d recommend this Medicare MSA for you. If we determine this is a good fit, we'll get you enrolled in the plan for the new year!

Ask us about the new MSA plan