Medicare+choice MSAs.

• Author: Schmelzle, George
• Position: Medical savings accounts

Per Sec. 138, a Medicare+Choice MSA is a type of medical savings account (MSA) that can be used by taxpayers who are eligible for the traditional Medicare program but prefer to accrue the benefits associated with MSAs. The Medicare+Choice MSA is a nontaxable savings account from which the taxpayer is reimbursed for qualified medical expenses. Contributions to the account are made only by the Secretary of Health and Human Services (Sec. 138(b)(2)). Since the fund is unlikely to have enough funds to cover a lengthy hospital stay, the taxpayer is required to purchase a high-deductible insurance policy. Each year, the deductible amount is increased to take into account rising medical costs; for 1999, the maximum deductible amount is $6,000.

Funds from the account are used by the taxpayer to pay the premiums on the high-deductible insurance policy, satisfy the deductible (if the taxpayer has a medical expense covered by the policy) and pay for any qualified medical expenses not covered by the insurance policy.

Once a taxpayer elects the Medicare+Choice MSA, he must enroll for a minimum of 12 months, although there is a one-time option of withdrawing by December 15 of the first year the beneficiary is enrolled in the Medicare+Choice MSA. The taxpayer who elects to use a Medicare+Choice MSA is not eligible for any other Medicare benefits.

Taxpayers using the Medicare+Choice MSA option should have more flexibility as to which medical providers they use, as some physicians will not accept patients that choose the traditional Medicare option. In addition, there is little chance that a given medical procedure will not be a qualifying medical expense that can be reimbursed from their high-deductible insurance policy or from the MSA. However, there is an investment risk to the individual; the account may not be large enough to satisfy the deductible, the insurance premiums and any qualified medical expenses not covered by the policy.

Banks and insurance companies typically act as trustees for Medicare+Choice MSAs. These trustees must furnish the account holder with a report that includes the fair market value (FMV) of the investments held in the account as of the end of the calendar year. The report must be presented to the account holder no later than January 31 of the calendar year following the one for which the report is prepared. Failure to provide a report for the account holder without reasonable cause could trigger a $50 trustee penalty for each...