Med. Savings Accounts

Med. Savings Accounts

Learn about this emerging new option for health care that can save you money.

Medical Savings Accounts (MSAs) are part of a new approach towards healthcare that puts emphasis on consumer control of funds. If you have difficulty obtaining health insurance and meet a few minor criteria, an MSA might be the option for you.

To be eligible for an MSA, you must be either self-employed or work for a small firm. In addition, you need to have a qualified high deductible plan, which entails an annual deductible between $1,500 and $2,250 for one person, or between $3,000 and $4,500 for a family. ¹

The principle behind MSAs is that they provide healthcare at a low net cost while still offering a low premium. This is done by taking a traditional high cost health insurance policy and dividing it into two sections: a higher deductible section and money for the MSA account. The MSA account is used to pay normal, smaller medical bills until the deductible is met. Should the need arise; the deductible account will then cover the larger expenses. Additionally, the MSA account is tax-exempt: money deposited into the account is fully tax deductible and money used to pay medical bills is tax-free. ² Employer contributions and interest accumulated are excluded from the employee’s gross income, and therefore, free from federal income tax. However, withdrawals made for purposes not covered by the MSA are subject to normal federal income tax as well as an additional 15% excise tax.³

To start an MSA, first verify that you have a high deductible health plan. If you work for a small firm, ask your employer or benefit manager about starting your MSA. If you are self-employed, simply talk to an insurance agent. Once your Medical Savings Account is set up, the savings should start rolling in.