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News of the Day ... In Perspective

12/4/2007

Open enrollment for Medicare MSAs, Nov 15–Dec 31, 2007

Medicare beneficiaries have a brief window of opportunity to sign up for the Medical Savings Accounts authorized by the Medicare Modernization Act of 2003, which also created Medicare Part D. The plans seem to offer financial advantages—but come with a price in freedom that may not be obvious.

Greg Scandlen of Consumers for Health Care Choices offers a succinct summary of “Medicare’s Biggest Little Secret.” Few people know about it, he states, as it has received so little publicity. It limits out-of-pocket responsibilities, replaces MediGap for no additional premium, and gives beneficiaries a source of tax-sheltered funds to pay for services not usually covered by Medicare. Scandlen and other advocates of consumer-directed health care believe that MMSAs are a step in the right direction, and should be considered by Medicare-eligible persons.

Each year, Medicare deposits a sum in the senior’s MMSA. Funds can be used for any IRS-qualified medical purchases, including dental care and eyeglasses. Actually, they can be used for any purpose, but there is a tax penalty for items that don’t qualify for a medical deduction. The unspent balance can be carried over to later years, and becomes part of the estate upon death.

The MMSA is linked to an insurance plan with a relatively high deductible. Not all medical expenses can be applied to meeting the deductible—only those covered by Medicare. While the patient supposedly owns the account, he does not have complete discretion as to its use: All expenditures are subjected to scrutiny to determine whether they “count.” Specifically, fees paid to opted-out physicians are not covered. Indeed, Medicare officials state that patients should not be seeing physicians who do not agree to Medicare’s terms and conditions.

If an opted-out physician accepts money that comes from an MMSA, he has apparently violated his CMS opt-out agreement, with all the disastrous consequences, warns AAPS Director Lawrence R. Huntoon, M.D., Ph.D. The MSA funds all come from government; the beneficiary is not allowed to contribute any of his own money.

Under traditional Medicare, there is no cap on out-of-pocket spending such as copayments for out-patient services. The MMSA, in contrast, covers 100% of such services (i.e. 100% of the allowed charge). Thus, there is no point in having expensive MediGap policies. However, beneficiaries might still want to purchase Part D coverage. The insurance plan does not pay for prescription drugs, although they may be paid for from the MSA. Longer hospital stays are “covered”—however, we do not know how the MMSA affects the hospital’s prospective payment, and thus cannot predict how many longer hospital stays will actually occur.

Unlike traditional Medicare, some MMSAs may have pre-authorization or notification requirements for certain services paid for under the high-deductible health plan. Ironically, patients who choose the MMSA may end up with less freedom, and be subject to more stringent rationing, Dr. Huntoon observes.

Beneficiaries considering an MMSA need to read the plan’s provisions carefully. They also need to calculate the financial consequences for their own situation. For a person with no employment income, the tax benefits may be minimal.

Scandlen gives instructions on how to look for plans offered in your area. Dr. Huntoon cautions that it may be exceptionally difficult to get answers to specific questions from CMS personnel or carriers—and that answers may be inconsistent and unreliable.

The MMSA, unfortunately, falls far short of its promise to offer an escape from government dependency. It might instead constitute a barrier to the real escape route of opting out.

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