Guide To Health Insurance.org

Medical Savings Accounts (MSA) were created by Congress in 1996 as way to aid small businesses in providing health care to their employees in the face of spiraling health care costs. These health plans encourage individuals and small businesses to replace high premium, low-deductible policies with high-deductible catastrophic plans that offer much more affordable premiums.

For individuals, the savings from paying lower premiums can be placed in a tax-deferred MSA, similar to an IRA plan, from which you can pay for out-of-pocket medical expenses, annual deductibles, and co-payments. For small businesses, MSA can help cut premium costs in half.

How MSAs Work

MSAs are comprised of two linked components. They are very similar to a Health Reimbursement Arrangements (HRA), only they are designed for small businesses and self-employed individuals. The program is comprised of a low-premium catastrophic medical insurance policy with a high deductible which is linked to a tax-free medical savings account which functions in a similar manner to an Individual Retirement Account (IRA) or 401(k). If the funds contributed to the account are not used to pay for deductibles, co-payments, and other qualified medical expenses, then the money in the account continues to grow and rolls over from year to year.

To be eligible for an MSA, you must be self-employed, and unlike the HRA, you must maintain a qualified high-deductible health plan for yourself and your family. An MSA cannot be used as a stand-alone product - you must have catastrophic insurance to be eligible. If you are an employer, you must have fewer than 50 employees and provide a qualified high-deductible health plan to your employees.

Benefits to Individuals

An MSA program is a great way to maintain affordable health insurance that lets you take control of how and where your money is used to pay for medical expenses. You do not have to conform to any HMO restrictions, and you can see the physician of your choice. Since most Preferred Provider Organizations (PPO) qualify as high deductible plans, you can also utilize the cost savings associated with these. In addition, interest on MSA accounts is deferred from income taxes, and after you reach the age of 65, you can withdraw funds from the account to use as you please without penalty. MSA funds can also be used to buy stocks, bonds, mutual funds and other investment devices.

Benefits to Small Businesses

MSAs have a set premium for each employee, regardless of age. For employers, this means that they are saving money on premiums, especially if they have a larger number of middle-aged to near-retirement-aged employees. MSA plans typically make these employees, and other employees with health problems, very happy because they see money building in an MSA, instead of being lost to high monthly premiums.

Employers can structure the MSA to cover the higher-deductible amounts so that employees can enjoy the benefits of the MSA without incurring greater financial responsibility. Small businesses are coming to find these types of medical benefits useful in attracting and retaining employees, since they are unable to offer the variety of plans presented by larger employers.