Medical Savings Accounts... 

MSA link (perspective from the medical industry)

Health Savings Accounts Guide

Health Savings Accounts Overview

Health Savings Accounts Questions and Answers

Take a look at message boards or e-mail listservs on the Internet dedicated to self-employed folks, and you'll see that one thing sure to incite them is health insurance. But if you're self-employed or work in a small company, you do have another option: a medical savings account (MSA). Although an MSA won't eliminate your need to buy a health plan, advocates say it does make insurance more affordable, while offering tax incentives to boot. According to the Internal Revenue Service (IRS), 10,106 Americans were able to buy health insurance in 1998 because of MSAs. Critics, however, contend that MSAs "cherrypick" the healthy and will eventually narrow health care choices.

A new way to pay for health care

An MSA is a tax-deferred trust or custodial account, similar to an IRA, in which you set aside money to pay for your routine, out-of-pocket health care expenses and to build up savings for your future medical costs. You or your employer contribute money to the MSA throughout the year or by making a lump-sum payment at the beginning of the year. Your contributions are 100 percent tax-deductible. Any insurance company, bank, or similar financial institution is allowed to be a qualified MSA trustee or custodian. Your health insurance agent can also help you set up an MSA or find a qualified company. You pay your medical expenses by withdrawing money from your account via a "distribution" paid to you by the trustee. You may also get a checkbook or a debit card specifically for your MSA.

If you have money left in your MSA at the end of the year, it is carried over to the following year, earning interest in the meantime. MSA's can be purchased only by self-employed people and by workers at businesses with 50 or fewer employees, since small companies are often priced out of the health insurance market. An MSA must be paired with a major medical health plan (sometimes called a "catastrophic plan") that has a high deductible. By definition, a high-deductible health plan has lower monthly premiums. Thus, the "forced" savings, in combination with low premiums, is what, in theory, makes health insurance more affordable: You'll take the money you save on premiums and put some of it toward the new plan and the rest in your MSA. High-deductible health plans are generally traditional, indemnity-style plans, not HMOs.

The government has set rules defining high deductibles. For an individual health plan, a high deductible must range from $1,500 to $2,250 annually. For a family plan, it must range from $3,000 to $4,500 a year. The money you contribute to your MSA can be used toward meeting your deductible, but, in general, it can't be used to pay your health plan's premiums.

Once you've met your annual deductible, your health plan policy kicks in. How much of your medical expenses it pays depends on the type of plan you have. In some cases, your health plan will pay 100 percent of your medical expenses after your deductible. In other cases, you'll have to pay 20 percent of the costs, known as coinsurance, which you can also pay from funds in your MSA.

Employers also benefit by offering MSA's, says Victoria Bunce, research and policy director of the Council for Affordable Health Insurance (CAHI). She says small employers often change health plans every year, not only creating administrative headaches for themselves, but also disrupting their employees' health care. But with MSA's, she says, employers can buy cheaper health plans, making them less inclined to change plans every year. CAHI, based in Alexandria, Va., is an association of more than 200 companies and individuals and a major advocate of MSAs.

Deadline approaches for new accounts

If an MSA sounds appealing so far, don't delay in setting one up. You might not be able to open one after the end of 2000. Congress approved MSA's starting on Jan. 1, 1997. They were authorized as a pilot program under the 1996 Health Insurance portability Act. The pilot program is set to expire either at the end of 2000 or when 750,000 accounts are created, whichever comes first. When the program expires, no new MSA's can be opened, but existing accounts will remain in effect.

MSA's have been slow to grab the interest of the American public, though. Fewer than 100,000 accounts have been created, and half the people who have MSA's aren't even putting money in them.

There are several reasons MSA's haven't caught on. For one thing, Bunce contends, they've been poorly marketed to the public. The narrow limits on who can open an MSA have also hurt, she says. "What happens if your employer has 51 employees? You don't qualify," she notes. "People are irate."

In addition, Bunce says insurers and other companies are reluctant to offer MSA's, and only about 50 in the entire country do so. The cost to design and market MSA's and train staff can run upward of $1 million — and insurers fear their huge investments would be for naught should the pilot program be canceled.

"It's a big leap of faith for companies to take," Bunce notes.  And although senior citizens also were supposed to be able to buy Medicare MSA's beginning in 1999, no private insurance company has stepped up to offer them, so that option has effectively shut down. Further, even though the law allowing medical savings accounts is federal, MSA's are not available in all states. That's because health plans are regulated on the state level, and the health plans sometimes cannot meet the requirements of the federal MSA law. If any part of a health plan has a deductible of less than $1,500, it won't qualify. In Maryland, for instance, home health benefits can carry a maximum $50 deductible, Bunce says, which disqualifies all of that state's health plans from the MSA program. However, most states are pushing for legislation that will enable health plans to meet the federal requirements, she says.

 MSA link (perspective from the medical industry)