What's the Difference Between an MSA and HSA?

The big difference between the two – HSAs are for people with high-deductible health plans and MSAs are for people with high-deductible Medicare Advantage (Part C) health plans.

The main advantage of both is that you can put pre-tax money into them and use the money to pay for qualified health care expenses.

What Is Health Savings Account (HSA)?

An HSA works much like a checking account, but funds in it can only be used for qualified healthcare expenses. You must be enrolled in a high-deductible health plan (HDHP) to open an HSA.

HSA benefits:

• The money you or another entity, such as an employer, puts in this account is not taxed by the federal government.
• Money in the HSA grows tax-free via accrued interest or by investing the money via your HSA bank.
• You do not lose unspent funds, your balance rolls over year after year.
• The funds can be used for a wide range of medical, dental, and mental health expenses.
• You may pay for medical expenses with a debit card that is linked to your account.
• You can also contribute after-tax dollars and deduct the amount from your annual tax return.

Drawbacks to HSAs:

• You must be enrolled in a high-deductible health plan (HDHP) to open or use an HSA.
• You are limited in the amount of money you can deposit into the account annually. In 2022, that amount is $3,650 for an individual and $7,300 for a family.¹
• You may be taxed plus penalized 20 percent if you spend the money on anything besides qualified health expenses.
• You must keep receipts to prove you spent HSA money on qualified health expenses.
• You may need to pay a monthly fee or per-transaction fee to be enrolled in your HSA.

What Is a Medicare Advantage Medical Savings Account (MSA)?

An MSA is paired with a high deductible Medicare Advantage Plan (Part C) in what is known as a Medicare Savings Account Plan.² Your health plan will deposit money into your MSA to help pay for some healthcare costs before you meet your deductible.

MSA benefits:

• Any money you or the health plan put into this account is not taxed by the federal government as long as it is used for approved healthcare expenses.
• When you use account money for Medicare-covered Part A (Hospital Insurance) and Part B (Medical Insurance) services, it counts toward your plan's deductible.²
• You do not lose unspent funds, your balance rolls over year after year.
• Dental, vision, and long-term care are usually not covered by regular Medicare (Parts A and B), but you can pay for them with MSA dollars.

MSA drawbacks:

• An MSA is always paired with a high deductible, which you must meet before the health plan pays for most services.
• You must keep records of how you spend the money from your MSA account for tax purposes.
• The plans do not include Medicare Part D prescription drug coverage, but you can purchase a stand-alone Part D plan and use MSA funds to pay your deductible.³
• If you use MSA money for anything except qualified health services, you will be penalized 50 percent and must pay income tax on the amount.³

If you have a high-deductible health plan or a high-deductible Medicare Advantage plan, HSAs and Medicare MSAs both allow you to offset out-of-pocket costs with tax-free dollars.

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Our Expert Reviewer

Patty Caballero and her team of consultants together have more than 35 years of health insurance knowledge working for some of the biggest health insurance companies in the US. She has knowledge in building brands and strategic initiatives to help consumers better understand their health benefits.