Medical Savings Accounts Basics
MSA's are a great idea that have yet to gain wide acceptance. As part
of the Kennedy-Kassenbaum health reform bill, MSA's were introduced in
January of 1997. The IRS was set to cut off the issuance of MSA's at 750,000
plans in October. With less than 250,000 plans created in 1997 and the
market failure of MSA's in the group market, it is likely that MSA's will
not be capped during this four year test program.
House Ways and Means Committee Chairman Bill Archer of Texas, introduced
a bill in Congress in Feb '98 that would make MSA's available to an estimated
2.5 million federal employees. This may be the psychological shot-in-the-arm
to bring this valuable tool to the forefront of health options.
We at American Insurance Group believe that MSAs are a "must consider"
for family health plans.
Advantages of an MSA
| Tax Savings |
You can deduct MSA contributions from your adjusted
gross income on your federal tax return even if you don't itemize
deductions.
|
| Interest Earned |
Dollars left in your account will grow with tax deferred
interest earnings.
|
| Reduced Insurance premiums |
When you change from a low-deductible health
plan to a high deductible health plan, your insurance premiums are
usually 20-50% lower. You can use these savings to fund your MSA.
|
What is a Medical Savings Plan?
- An individual savings account that you can use to cover your health
care expenses.
- The funds that are controlled by you, the account holder.
- It is portable: the funds remain with you regardless of employment.
- Money not spent each year remains in the account for use in subsequent
years.
The result? You save on health insurance premiums. For a federally qualified
plan you must purchase and maintain a high deductible insurance policy.
| Coverage |
Annual Deductible No more than
No less than |
Total out-of pocket expenses
(no more than) |
| Single |
$1,500
$2,250 |
$3,000 |
| Family |
$3,000
$4,500 |
$5,500 |
| Coverage |
Maximum
Deductible |
Maximum MSA Percentage |
Maximum Yearly MSA Contribution |
| Single |
$ 1,500 |
65% |
$ 1,462 |
| Family |
$ 3,000 |
75% |
$ 3,375 |
When you obtain a qualified MSA eligible medical plan you make a tax
deductible deposit into an interest bearing MSA account. This account
is held by a trustee who may charge $25 to $50 per year maintenance. The
trustee issues you a checkbook and/or Debit (Visa-Mastercard) Card. When
you have eligible medical expenses that are not covered by your medical
plan you pay for them with your trustee account.
A 15% penalty would apply to funds withdrawn from the savings account,
prior to age 65, and used for non-medical purposes, except in the case
of death or disability.
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