If you’ve taken the time to read my blog introducing the Medicare Savings Account, or MSA, then you will be well prepared to understand this topic. If not, I recommend you do so before reading this one.
Here we will review the strategy of pairing indemnity plans with a Medicare Savings Account. As we do so, I want you to keep in mind that this strategy is also applicable with the traditional Medicare Advantage, or Part C, plans. Keep in mind that there are many variations on the types of indemnity plans out there, so it can be a very customized solution. If you are seeking help with this strategy our knowledgeable, experienced agents at Elite Senior Insurance can help. We are independent Medicare agents specializing in Medicare solutions in the states of North Carolina, Virginia, Maryland, Delaware, and Pennsylvania.
Again, this blog presents a review of the strategy of combining an indemnity plan with an MSA. I will briefly review the features of MSAs, but if you want to learn more about the MSA please check out my blog in this series which goes into far greater detail. Here I will explore further indemnity plans. I will summarize how they work well together, and how they may be a solution for you to consider.
Combining MSA with Hospital Indemnity or Critical Illness Plans
Let’s turn our attention to the strategy of combining an MSA with a hospital indemnity plan and/or a critical illness plan.
The Medicare Savings Account is likely the least known and understood of the benefits that come with Medicare Advantage plans. As a result, understanding how it can work with other plans is lacking. These other plans are specifically of the hospital indemnity and/or critical illness variety. With this blog, it is my hope that you understand the unique planning opportunity that exists when using these plans together.
A Brief Recap of MSA Features
Remember the MSA is a high deductible health plan. Also remember that the insurer contributes on your behalf into a savings account. I am going to use some typical plan amounts for sake of this illustration.
In many cases, the plan deductible is $5,000 or $8,000 for 2021, depending upon plan selection. Also in many cases, the amount of the insurer contribution to the savings account for your benefit is $2,000 or $3,000, again depending on plan selection.
So, when the year begins, you start with up to $3,000 to be used for Medicare approved expenses. If, in this example, during the year you have Medicare-related expenses that exceed $3,000, then you pay for those expenses out-of-pocket until the total reaches $8,000. If the total reaches $8,000, then the plan takes over and pays 100% of any expenses for the rest of the year.
One thought that should come to mind at this point is “what should I expect to pay in Medicare-related expenses,” or in other words “what is the likelihood I will exceed the $3,000 contribution to my account?
Obviously, those questions are impossible to answer on an individual basis. One can, however, look at the factors that will most likely cause one to exceed to contribution and begin using personal funds up to the deductible before the plan takes over 100%.
Factors to Exceeding Your Contribution
First and foremost is one’s general overall health. This is a predictor of medical costs. If one is in good health and goes to the doctor for checkups and other minor issues, the odds of exceeding the contribution are small compared to someone suffering from a chronic condition or someone seeing multiple specialists, as an example.
Second is one’s willingness to address their overall health. If one is willing to exercise regularly, eat a good diet, refrain from smoking, etc., then the odds of seeking medical care decrease. In summary, personal control of managing one’s own health is the most controllable factor.
Also, it is important to think about what is the most likely singular event that would cause someone to exceed the contribution amount. I can think of two examples. One is in the case of an accident, and the other is a critical illness diagnosis, or event.
In terms of an accident, this could be anything from a trip and a fall leading to an emergency room visit to a serious car crash that puts one in the hospital for a period, and everything in-between.
In terms of critical illness, this could be a heart attack, stroke, or a cancer diagnosis.
Avoiding Risk by Combining Indemnity and MSA Plans
With these thoughts in mind, how would one enjoy the benefits of the MSA contribution paying for the majority, if not all their Medicare-related expenses, while hedging against the risk of a singular event pushing them into the out-of-pocket scenario up to the deductible of the plan?
To hedge against this risk, one could consider coordinating, or combining, an indemnity plan in conjunction with an MSA plan. Let’s review first what an indemnity plan is, and second how they can be strategically used with the MSA.
Indemnity plans come in many varieties and have many choices of coverage level. In the scenario we are reviewing here, we are focused on indemnity plans that pay out a fixed amount when the event occurs. The event can be the hospital stay, heart attack, stroke, or cancer diagnosis mentioned earlier.
Typically, these fixed indemnity plans pay directly to you a lump sum once the claim is filed – the plan does not pay the service provider.
In the case of the hospital indemnity plan, one would purchase an amount “per day” of hospital confinement, or in some cases, simply an emergency room visit. As an example, one could purchase an indemnity plan that would pay $500 a day for up to six days of hospital confinement, or $250 for an emergency room visit.
Remember, these are only examples. There are wide ranges in terms of what one could purchase. As you would expect, the greater the coverage the more costly the premium.
In the case of the critical illness, one would purchase a plan that would pay out a lump sum upon the event occurring. As an example, one could purchase a policy that would pay a $10,000 lump sum if either of the three (heart attack, stroke, or cancer diagnosis) would occur.
Remember that these policies pay directly to you, not the hospital or service provider, so the money can be used in any way the insured wishes. So, in the case of the critical illness, if one had a policy paying out $10,000, that money can be used for groceries, lost wages, hotel rooms, meals, etc. in addition to helping pay the medical costs up to the deductible.
How MSA and Indemnity Plans Work Well Together
Let’s take a deep breath and bring all this together. Now that we have reviewed the MSA, and described how indemnity plans operate, let’s discuss how they can work well together.
As a reminder, with the MSA, you are responsible for the amount beyond the insurer contribution and up to the plan deductible.
In our earlier example, we used the contribution amount of $3,000 and a plan deductible amount of $8,000, so let’s stick with those. Those amounts leave you at risk of $5,000, the difference between the deductible and the contribution to your account.
Again, we are proposing that although anyone can have an unexpectedly bad health year, the most likely culprit of one exceeding the contribution amount and needing to pay out-of-pocket is an accident or critical illness.
In other words, how does one protect against the $5,000 potential out-of-pocket exposure.
In the case of the accident, one could purchase a hospital indemnity plan for, say $400 a day for up to 10 days. A recent quote I ran for that amount of coverage was approximately $25 to $30 per month. Be reminded that there are many different levels of coverage to be purchased, this is just one example.
In the case of the critical illness, a recent quote I ran for a healthy 65-year-old was around $30 per month.
So, let’s bring those two together. In my examples, for a total cost of approximately $55-60 per month, one can protect against the out-of-pocket exposure of $5,000.
It may be worth reminding you here that the MSA plans typically have no monthly premium, so the $55-$60 illustrated here is usually much less than a stand-alone Medicare supplement or medigap plan.
I know I’ve thrown a lot at you in this blog, so let’s summarize.
The MSA plan gives you $2,000 to $3,000 to use for Medicare-related expenses. If you do not use those funds, they rollover to the next year and are yours to keep and use for Medicare-related expenses. The MSA plans typically have a zero monthly premium.
The exposure of the MSA is if one has a bad health year or a singular event that will likely cause them to exceed the contribution amount and begin coming out-of-pocket. A way to hedge against that risk is the use of an indemnity plan. In many cases the total monthly premium will be less than other solutions, and if one does have a healthy year, they will accumulate a nice nest egg going forward to be used for Medicare-related expenses.
Also remember the MSA is a type of Medicare Advantage plan, so you are always eligible for it (with few exceptions).
Lastly, and to reiterate, there are many ways to compliment the MSA or Medicare Advantage plan with an indemnity plan. Since indemnity plans come in many shapes and sizes, it’s important to choose the right one. The experienced and knowledgeable independent Medicare agents of Elite Senior Insurance serving NC, VA, MD, DE, and PA can help you complete that exercise, so you have great confidence in your choice.
I hope you have enjoyed this blog and if you feel that the strategy outlined here is of interest to you, please visit our Facebook page and our website to learn more and to locate your local Medicare agent near you.