HSA vs. Medicare MSA: How They Differ, What Happens to the Money, and What's Available in Arizona

By Samuel Tripp · Published October 2, 2026 · 23 min read

A Health Savings Account and a Medicare Medical Savings Account sound like cousins. Both pair a high-deductible plan with a tax-favored account for medical bills, and in both, unused money carries over. But they're built for different stages of life. They're funded differently, and they follow different tax rules. Mixing them up can cost real money, especially if you're turning 65 with an HSA, or you've heard an MSA lets you "bank" Medicare dollars.

This guide explains how each account works, what you can spend the money on, and what happens when your coverage changes. And for my neighbors in Tucson and across Arizona, it answers a question most articles skip: can you actually get a Medicare MSA here? (Short version: not as an individual plan, but a group-sponsored Medicare MSA may be another path.)

What Is a Health Savings Account (HSA)?

An HSA is a personal, tax-favored account for medical costs. You can contribute only while you're covered by a qualifying high-deductible health plan (HDHP) and meet a few other rules. The account belongs to you, not your employer, so it stays with you if you change jobs, retire, or switch insurance.

The IRS sets contribution limits and HDHP requirements each year:

Sources: IRS Rev. Proc. 2025-19 (2026) and Rev. Proc. 2026-24 (2027).

What's new for 2026: A 2025 federal law expanded who can use an HSA. According to IRS guidance, individual bronze and catastrophic plans available through the Health Insurance Marketplace now count as HSA-compatible (small-group SHOP plans don't automatically qualify). Certain direct primary care memberships (up to $150 a month, or $300 for more than one person) no longer block you from contributing. And for plan years starting in 2025 or later, HDHPs can permanently cover telehealth before you meet the deductible.

A brief history of HSAs

HSAs grew out of an earlier experiment. In 1996, the law known as HIPAA created "medical savings accounts" (later renamed Archer MSAs) as a limited pilot for self-employed people and small employers with 50 or fewer employees.

The modern HSA arrived with the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, signed December 8, 2003. Section 1201 of that law created HSAs, starting with the 2004 tax year. It's the same law that created Medicare Part D. That shared birth certificate is one reason people confuse HSAs with Medicare's own savings-account plan.

The original idea was simple: pair a high-deductible plan with an account to cover the deductible. Over two decades, HSAs became something more. Because unused money rolls over, can be invested, and can be withdrawn for non-medical reasons after 65 without a penalty, many people now treat an HSA as a long-term reserve for health costs in retirement.

What Is a Medicare Medical Savings Account (MSA)?

A Medicare MSA is not a bank account you open on your own. In Medicare's words, it's "a type of consumer-directed Medicare Advantage Plan (Part C)." It has two parts that work together:

1. A high-deductible Medicare Advantage plan. It covers Medicare Part A and Part B services, but only after you meet a high yearly deductible.
2. A medical savings account. At the start of each calendar year, the plan deposits money from Medicare into the account. You use it for medical costs, including costs before you reach the deductible.

Medicare MSAs reach people in two ways. Individual MSA plans are open to anyone with Medicare who lives in the plan's service area. Group-sponsored MSA plans are offered through an employer or other qualifying group to people connected to it. The account works the same way under Medicare and IRS rules; what differs is how you get in.

A few details surprise people:

• The deposit and the deductible are set by each plan, and the deposit doesn't have to match the deductible. If the deposit is smaller, you pay the gap yourself before the plan starts paying. Medicare caps the deductible at $18,100 for 2026 and $18,900 for 2027.
• Only Medicare-covered services count toward the deductible. You can pay for dental or vision care from the account, but those costs don't move you closer to the deductible.
• There's no drug coverage. If you want Part D, you join a separate Medicare drug plan.
• The MSA plan itself has no monthly premium, but you keep paying your Part B premium.
• You can't deposit your own money. Only the plan makes deposits.

Don't confuse a Medicare MSA with a Medicare Savings Program (state help paying Medicare premiums for people with limited income), Medicaid, or a Medicare Set-Aside (used in some injury settlements).

A brief history of Medicare MSAs

Medicare MSAs started as a test. The Balanced Budget Act of 1997 authorized them as a limited demonstration, capped at 390,000 enrollees, with enrollment allowed starting January 1, 1999. Then nothing happened. A 2000 report to Congress found that no insurer had even applied to offer one. It pointed to "little demand from the risk-averse Medicare beneficiary population" and the cost of marketing a complicated product.

The 2003 law that created HSAs also made Medicare MSAs permanent, and the first plans became available in 2007. They've stayed rare. As of September 2026, CMS enrollment data shows about 2,800 people nationwide in Medicare MSA plans, out of roughly 36 million in Medicare Advantage. About half of those MSA members are in employer-sponsored group plans.

Why so few? An MSA rewards healthy years with lower costs and more control. But a bad year can mean a large deductible gap, with no drug coverage built in. Most people on Medicare prefer predictable costs.

HSA vs. Medicare MSA: The Key Differences

If you remember only five things, make it these:

1. Timing. An HSA is for the years before Medicare. A Medicare MSA is Medicare coverage.
2. Who puts money in. You and your employer fund an HSA. Only the MSA plan funds an MSA, using Medicare dollars.
3. Whose bills it pays. HSA money can pay for you, your spouse, and your dependents. Medicare MSA money is for the account holder only.
4. Premiums. After 65, an HSA can pay Medicare Part B, Part D, and Medicare Advantage premiums. A Medicare MSA can't pay Medicare premiums.
5. Penalties. A non-medical HSA withdrawal adds a 20% tax, which goes away at 65. A non-medical MSA withdrawal can add a 50% tax, with no age exception.

Side-by-side comparison

Sources: Medicare.gov, IRS Publication 969, IRS Form 8853 instructions, 26 U.S.C. §138, CMS rate announcements.

Who Is Eligible for an HSA?

According to IRS Publication 969, you can contribute to an HSA for any month you meet all four of these:

• You're covered by a qualifying HDHP on the first day of the month. That can be an employer plan or an individual plan, and, starting in 2026, an individual bronze or catastrophic plan available through the Marketplace (per IRS Notice 2026-5).
• You have no other health coverage that disqualifies you, such as a spouse's non-HDHP plan that covers you or a general-purpose health FSA. Some limited coverage, like dental and vision, is allowed.
• You aren't enrolled in Medicare.
• No one can claim you as a dependent on their tax return.

That third rule trips people up. Being eligible for Medicare doesn't stop HSA contributions; enrolling does. The IRS has said directly that "mere eligibility for Medicare does not make an individual ineligible to contribute to an HSA" (Notice 2004-50). We'll cover the age-65 details below.

Self-employed people and business owners can open an HSA the same way anyone else can: with a qualifying HDHP. You don't need an employer to sponsor it.

Who Is Eligible for a Medicare MSA?

Every Medicare MSA requires Medicare Part A and Part B. For an individual MSA plan, you must also live in the plan's service area, and you can generally join only when you're first eligible for Medicare or during the Annual Enrollment Period, October 15 to December 7 (42 CFR 422.62). For a group-sponsored MSA, you need a qualifying connection to the sponsoring employer or group.

For individual MSA plans, leaving follows the same calendar: you can generally switch out only during that fall period or with a Special Enrollment Period, and MSA members can't use the January–March Medicare Advantage Open Enrollment Period. Group plans work differently. Under CMS's employer group rules, the sponsor sets when people can enroll, and members can generally leave at any time.

Under federal Medicare rules and the CMS guide to Medicare MSA plans, you can't join if any of these apply:

• You have other health coverage that would cover the MSA plan's deductible, including employer or union group coverage.
• You get benefits from TRICARE or the Department of Veterans Affairs.
• You're a retired federal employee in the Federal Employees Health Benefits Program.
• You're eligible for Medicaid.
• You're currently getting hospice care.
• You live outside the United States more than 183 days a year.

The most important limit isn't on that list: you need a way in. You can't open a Medicare MSA at a bank the way you can open an HSA. Either an individual MSA plan is sold where you live, or you have a qualifying connection to a group that sponsors one. In Arizona right now, the group path is the one to look into (more below).

What Can You Spend the Money On?

Both accounts pay for "qualified medical expenses," which the IRS defines in Publication 502. Think doctor visits, hospital care, prescriptions, dental work, eye exams and glasses, and hearing aids. But the two accounts differ in three ways that matter:

• Whose bills. HSA money can pay for you, your spouse, and your dependents. Under federal law, Medicare MSA money can pay only for the account holder's care (26 U.S.C. §138(c)(1)).
• Premiums. Once you're 65, an HSA can pay Medicare premiums, except Medigap. A Medicare MSA can pay only long-term care insurance, COBRA continuation coverage, and coverage while you're receiving unemployment (Form 8853 instructions).
• The deductible. In an MSA plan, you can spend account money on dental or vision care, but only Medicare-covered Part A and Part B services count toward your deductible.

Can I use the money for this?

Sources: IRS Publication 969, Publication 502, Form 8853 instructions, Rev. Proc. 2025-32, CMS MSA guide. Rules on specific items can be detailed; when in doubt, check Publication 502 or ask a tax professional.

What Happens to Unused Money?

Neither account is "use it or lose it."

• HSA: Money left at the end of the year carries over. Publication 969 puts it plainly: "The contributions remain in your account until you use them." Earnings aren't taxed while they stay in the account, and many HSA providers let you invest in mutual funds or similar options.
• Medicare MSA: Per Medicare.gov, "Money left in your account at the end of the year stays there and may be used for health care costs in future years." In years when your medical spending is lower than the deposit, the balance grows.

Can HSA or Medicare MSA Money Become Part of My Retirement Strategy?

Yes, with care. Neither is a retirement account under the tax code, but each can help cover health care costs in retirement.

How an HSA can help

• Decades of tax-free growth. Contributions, investment growth, and qualified medical withdrawals can all be free of federal tax.
• Age 65 removes the penalty. Before 65, a non-medical withdrawal is taxed as income plus a 20% additional tax. From 65, only income tax applies. Qualified medical withdrawals stay tax-free.
• It can pay Medicare premiums from 65: Part B, Part D, and Medicare Advantage, including premiums withheld from Social Security (IRS Notice 2004-50). Not Medigap.
• It can pay for long-term care services, plus long-term care insurance premiums up to IRS age-based limits.

How a Medicare MSA can help

• Healthy years can build a cushion for a costly one, because the balance carries forward.
• Qualified withdrawals stay tax-free for your own care, including dental, vision, and hearing.
• Non-medical withdrawals are costly. They're taxed as income and may add a 50% tax. There's no age-65 exception, though the 50% tax doesn't apply after the account holder becomes disabled or dies.
• The law allows a narrow cushion. The 50% tax applies only to the amount by which the year's total non-medical withdrawals exceed your balance on the prior December 31, minus 60% of your plan's January 1 deductible (26 U.S.C. §138(c)(2)). Talk to a tax professional first.

What Happens When You Move From an MSA to Another Medicare Plan?

This is the question most articles skip. Here's an example.

Imagine you've built up $8,000 in your Medicare MSA over several years. You decide the plan isn't the right fit anymore and want to switch. What happens to the $8,000?

The money doesn't go back to Medicare. It stays in your account. What leaving changes, per Medicare.gov: "no more money will be added to your account." And if you leave before the year ends, you pay back part of that year's deposit, based on the months left.

Two questions get mixed up here, and they have different answers:

• Do you keep the money already in the account? Yes. It's your account, whether you stay, switch, or return to Original Medicare.
• Do you keep getting new deposits? Only while you're enrolled in a Medicare MSA plan. Once you leave, deposits stop, wherever you go next.

Sources: Medicare.gov, CMS MSA guide, 42 CFR 422.62, Form 8853 instructions.

Can you keep spending it tax-free after you leave? For your own qualified medical expenses, the federal tax law that governs these accounts doesn't require you to still be in an MSA plan (26 U.S.C. §138(c)(1)(B)). Neither Medicare.gov nor the IRS spells out the post-switch situation in plain language, though. Before spending a large balance after you've left an MSA plan, confirm the details with your account custodian and a tax professional.

A word about Medigap

While you're in a Medicare MSA plan, CMS says "it's illegal for anyone to sell you a new Medigap policy." If you already had one, you can keep it, but it won't pay any part of the MSA deductible.

If you later return to Original Medicare and want Medigap, timing matters. In some situations you have a guaranteed right to buy a policy. One example: you joined Medicare Advantage when you first became eligible at 65 and switch back within the first year. But individual MSA members can usually leave only during the fall Annual Enrollment Period or with a Special Enrollment Period, so check whether your exit date still falls inside that window. Outside those situations, insurers can generally review your health history before accepting you. Check your options before you leave the MSA plan, not after.

HSA and Medicare: What Changes at Age 65?

Turning 65 doesn't end your HSA. Enrolling in Medicare ends your ability to add to it.

Contributions stop when any part of Medicare starts

That includes Part A alone. Publication 969 says: "Beginning with the first month you are enrolled in Medicare, your contribution limit is zero." In the year you enroll, your limit is prorated by the months before Medicare begins.

Social Security and the 6-month look-back

If you're 65 or older and collecting Social Security, you're automatically enrolled in Part A. You generally can't decline it without paying back your benefits.

If you sign up after 65, premium-free Part A can start up to six months before the month you apply, but no earlier than the first month you were eligible for Medicare. Contributions made in those backdated months become excess contributions, which carry a 6% excise tax each year until corrected. That's why Social Security and Medicare.gov both advise stopping HSA contributions, including your employer's, at least six months before you apply for Medicare or Social Security benefits.

You can still spend the money

Social Security's own booklet says you "may use money that's already in your HSA after you enroll in Medicare to help pay for deductibles, premiums, copayments, or coinsurance." The exception to remember: Medigap premiums.

Married couples and working past 65

If your spouse isn't on Medicare and has family HDHP coverage, your spouse may still contribute to their own HSA. There are no joint HSAs, and splitting a family limit gets technical, so ask a tax professional. If you're under 65, your HSA generally can't pay a 65-year-old spouse's Medicare premiums.

If you're still working, employer size matters. With 20 or more employees, the group plan generally pays first, so you may be able to delay Medicare and keep contributing. With fewer than 20, Medicare generally pays first. When work or job-based coverage ends, you usually get an 8-month Special Enrollment Period to sign up for Part B.

Why Business Owners Should Understand HSAs

For the self-employed and small-business owners, an HSA can be one of the more flexible health-benefit tools available.

• No employer required. A qualifying HDHP is enough. Starting in 2026, individual bronze and catastrophic plans available through the Marketplace count. Small-group (SHOP) plans don't automatically qualify.
• Deductible without itemizing. Per Publication 969, your own contributions are deductible "even if you don't itemize," reported on Form 8889.
• Employer contributions, including through a cafeteria plan, can be excluded from employees' income. The account goes with the employee if they leave.
• S corporation owners are different. If you own more than 2% of an S corp, employer HSA contributions for you are treated differently (IRS Notice 2005-8). Have your tax professional set this up.
• Direct primary care now fits. Starting in 2026, a qualifying membership up to $150 a month ($300 for more than one person) won't block contributions.

Approaching 65 as an owner? Plan the month your contributions, and your business's contributions for you, need to stop. Build in the 6-month look-back if you'll apply after 65. And with fewer than 20 employees, Medicare generally pays first, which often changes whether staying on the company plan makes sense.

This section is general education, not tax advice. How HSAs fit your business depends on your entity type, payroll setup, and plan design.

Why Can't I Find a Medicare MSA Plan in Arizona?

If you compare Medicare plans for an Arizona ZIP code, you probably won't see a Medicare MSA. That's accurate for the individual market. CMS's official plan lists for 2026 and 2027 show no individually marketed MSA anywhere in Arizona, including Pima County. The only individual MSA plan in the country is in Wisconsin. Arizona did have two individual MSA plans from one insurer in 2023; neither returned for 2024.

But "no individual MSA in my county" isn't the same as "no Medicare MSA option at all." Medicare MSAs reach people in two different ways:

Why group plans don't show up in your search. CMS's public plan lists don't include employer-sponsored plans. Those belong to a separate category CMS calls employer group waiver plans. According to CMS, enrollment in them "is not open to all Medicare beneficiaries in the service area but must be employment-based." So the difference is in how the plans are offered, not an error in Medicare's data.

Group MSAs are also not a fringe idea. CMS's September 2026 enrollment report shows 1,462 of the 2,843 people in Medicare MSA plans nationwide were in employer-group plans.

A few practical points for Arizonans:

• Availability changes each year. CMS releases the next year's plan lists each fall, so individual MSA options can come and go.
• Free, unbiased Medicare counseling is available. Arizona's State Health Insurance Assistance Program (SHIP) is at 1-800-432-4040. In Tucson, the Pima Council on Aging serves as the local SHIP at (520) 546-2011.
• State taxes. Arizona starts its income tax calculation with your federal adjusted gross income, so it generally follows the federal treatment of HSA contributions. Confirm your situation with a tax professional.

Can an Employer Offer Access to a Medicare MSA?

In some cases, yes. Some Medicare MSAs are set up as group plans. An employer or other qualifying group signs on as the sponsor. Medicare beneficiaries connected to that sponsor may then be able to enroll.

Who might qualify. Depending on the arrangement's rules, that can include:

• current employees;
• former employees and retirees;
• independent (1099) contractors;
• Medicare-eligible spouses and dependents.

A group can be as small as one person, so a business with a single owner can serve as the sponsor. Every participant must still meet Medicare's MSA rules. That means having Parts A and B and no other coverage that would pay the deductible, such as a company major-medical plan or Medicaid.

What it can cost the employer. In the standard version of this arrangement, the employer isn't required to fund the MSA benefit. That fits how MSA plans work in general: the plan has no monthly premium, and the yearly deposit comes from Medicare. Members still pay their own Part B premium, and a separate Part D plan if they want drug coverage. Some sponsors use different arrangements that do involve fees, so ask how any version you're considering is funded.

Who it may interest:

• small businesses with Medicare-eligible employees;
• business owners who are on Medicare themselves;
• self-employed people and 1099 workers;
• employers who want to offer something to retirees or former employees;
• households where a spouse or dependent is on Medicare.

What it doesn't do. It doesn't guarantee anyone a spot. Eligibility depends on the specific arrangement's requirements, and the sponsor has to be a genuine business or other qualifying entity, so access isn't automatic. It also isn't right for everyone: someone who expects to reach a high deductible every year may be better served by another Medicare option.

A caution for employers with a company health plan. Federal rules bar employers from offering Medicare beneficiaries incentives not to enroll in, or to drop, a group health plan (42 CFR 411.103). Talk with your benefits advisor about how a group MSA would sit alongside your existing coverage.

The bottom line: not finding an individual MSA in your county doesn't necessarily mean you have no path to one.

Final Thoughts

HSAs and Medicare MSAs share a philosophy: give people a high-deductible plan and an account they control. But they belong to different chapters of life. An HSA is a tool for your working years that can follow you into retirement. A Medicare MSA is one specific kind of Medicare coverage, and in Arizona today, a group-sponsored plan is the path to look into.

If you're approaching 65 with an HSA, your biggest decisions are timing (when to stop contributing) and spending (using the balance well, without paying Medigap premiums from it). If you're already on Medicare, the more useful question is which Medicare Advantage or Medicare Supplement setup fits your doctors, prescriptions, and budget.

Schedule a Time to Talk About Your Options

Medicare MSA availability can be confusing, especially in Arizona, where you may not see an individual MSA when you search Medicare Advantage plans. Group-sponsored Medicare MSAs can be another path for people who qualify.

Maybe you're approaching Medicare, already enrolled, or self-employed. Or maybe you're a business owner thinking about making an MSA option available to eligible employees. Either way, I'm happy to explain how the structure works and help you find out whether it may be available in your situation. Whether an HSA, an MSA, or another Medicare option fits best depends on your coverage, health, and timing. There's no pressure and no obligation.

Schedule a time to talk about your options

Medicare questions are handled through Tucson Medicare Center, our Medicare-focused practice here in Tucson.