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. 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 and outpatient services covered under Medicare Parts A and B, including hospital stays, doctor visits, durable medical equipment (DME), home health care, 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 or other prescription drug coverage cost-sharing (premiums, deductibles, copayments, coinsurance).

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.