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Health Insurance
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Health Savings Accounts
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Medical
Savings Accounts
MSAs are health plans
that combine a high deductible health plan (HDHP) with a tax free savings
account. A high deductible insurance plan is less expensive than a low
deductible plan. The idea is that you would put the monthly premium
savings into a tax-free savings account and use the money to pay for medical
expenses not covered until your deductible is met. MSAs:
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are established with a
financial institution and enable employees to use the accumulated fund to help
pay health plan deductible expenses
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include money
contributed by you or your employer (not both)
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funded with pre-tax
dollars and accumulate interest tax-free
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do not include the
use-it or loose-it personality of the FSA account
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can be used, after age
65, to pay for non-medical expenses or rolled over to a IRA
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are available only
when coupled with high deductible health plans subject to guidelines below
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MSA savings cannot be
used to pay the medical premiums
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EXAMPLE - Family -
37 year old couple with two children coverage including RX:
$500/$1000 deductible
plan with 80/20 co-pay: $520
$2000/4000 deductible
plan with 80/20 co-pay after deductible: $346
Monthly Savings:
$174
Annual Savings:
$2,088
These plans are not
for everyone, but if you can afford the extra risk you could realize up to a $2,087.76 savings
each year. If you put $1,500 of the savings into your MSA, you
will have the extra risk covered with less out of pocket.
The guidelines
for what you can spend your money on are broad --
see IRS Publication 969 -
Guide to MSAs. Even if a provider or service is not offered by your
insurance policy, you can use the money to pay for it.
The IRS sets guidelines for MSA plans and
their associated HDHPs. The guidelines include minimum and maximum annual
deductibles and maximum annual out-of-pocket expenses.
MSA contribution limits
for tax year 2003
For tax year 2003, you can make
annual contributions to an MSA up to 65% (75% for HDHPs providing
Family Coverage) of your HDHP deductible, or 100% of your earned
income, whichever is less.
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HDHP
Minimum Deductible |
HDHP
Maximum Deductible |
HDHP
Out-of-Pocket Limit |
Percentage of Deductible that may be contributed
to MSA |
Maximum Contribution based on Minimum Deductible |
Maximum Contribution based on Maximum Deductible |
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Self Only Coverage |
$1,700 |
$2,500 |
$3,350 |
65% |
$1105.00 |
$1625.00 |
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Family Coverage |
$3,350 |
$5,050 |
$6,150 |
75% |
$2512.50 |
$3788.00
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We recommend MSA's to sole-proprietors
because they may not be eligible for the more flexible Health Reimbursement
Arrangement. MSA's are also recommended for organizations where the age and personality of the group makes it
a good choice. An example would be in a work population where there are
fewer children (less out of pocket expense) and the employees are closer to
retirement age. If you have 3 or more employees, chances are good that you
can set up two plan choices for your group. One might be an MSA and the
other a more traditional low deductible plan.
Large organizations (over 50
employees in most cases) are not able to set up MSAs. We recommend the FSA
for these organizations.
For more information on the MSA, and when we think it's
best suited, contact us! To see how to set up an MSA, see
How to set up an MSA.
For more information on the Medical Savings
Account, click here MEDICAL SPENDING
ACCOUNT FREQUENTLY ASKED QUESTIONS.
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