It is generally a good idea to use the money in your Medical Savings Account (MSA) to pay for qualified medical expenses. This is because money you spend on qualified medical expenses will not be subject to income tax. If you use money from your MSA for anything else, you must pay income tax on that amount.
While all qualified medical expenses are tax-exempt, not all count toward your deductible The deductible is the amount you must pay for health care expenses before your health insurance begins to pay. Deductible amounts can change every year. . Keep in mind that you may have to pay more out of pocket before your plan provides coverage if you use your MSA for expenses that do not count toward your deductible.
- Expenses that count toward your deductible: inpatient An inpatient is a patient who has been formally admitted into the hospital by a doctor. Most inpatient care is covered under Medicare Part A (hospital insurance). and outpatient An outpatient is a patient who has not been formally admitted into the hospital as an inpatient. Most outpatient care is covered under Medicare Part B (medical insurance). services covered under Medicare Parts A and B, including hospital stays, doctor visits, durable medical equipment (DME) Durable medical equipment (DME), also known as DMEPOS (Durable Medical Equipment, Prosthetics, Orthotics, and Supplies) is equipment that primarily serves a medical purpose, is able to withstand repeated use, and is appropriate for use in the home; for example, wheelchairs, oxygen equipment, and hospital beds. Medicare only covers DME if your provider says it is medically necessary for use in the home. , home health care Home health care is care provided at home to treat an illness or injury. Medicare will only cover home health care if you are homebound and have a need for skilled care, including skilled nursing and/or skilled therapy services. , and skilled nursing care. You must follow your plan’s coverage rules in order for the expense to count toward your deductible.
- Expenses that do not count toward your deductible: Services that are not covered by Medicare Parts A or B, including dental care, vision care, and your Part D Part D, also known as the Medicare prescription drug benefit, is the part of Medicare that provides prescription drug coverage. Part D is offered through private companies either as a stand-alone plan, for those enrolled in Original Medicare, or as a set of benefits included with a Medicare Advantage Plan. or other prescription drug A prescription drug is a drug that can be obtained only if you have a prescription from a provider. Prescription drugs cannot be bought over the counter. coverage Ccst-sharing (premiums, deductibles, copayments, coinsurance The coinsurance is the portion of the cost of care you are required to pay after your health insurance pays. Usually, it is a percentage of the approved amount or negotiated amount. In Original Medicare, the coinsurance is usually 20% of Medicare’s assignment. ).
You can use the money in your MSA account for non-medical expenses, such as groceries, rent, or utility bills. However, the amount you spend for non-medical purposes will not count toward your deductible and will be considered taxable income.