What is a medical savings account?

The Medical Savings Account (MSA) generally refers to self-employed individuals or businesses catered to less than 50 employees. United States has two account programs under medical savings, namely, Medical Savings account started in 1993, which is still under practice in California, and secondly, Health savings account started in 2003, which is at present more extensively available. The money that is unused after getting added to the account is automatically rolled over to the next year. Thus, savings can be accumulated and hence be turned into a reasonable investment for future. This Medical Savings Account can be converted into an IRA savings plan after a particular age is attained.

The MSA accounts can fulfill health care coverage while delivering unemployment benefits or other forms of health care coverage needed under the federal law. This medical savings account has a tax advantage for the U.S. citizens who register themselves in a High Deductible Health Plan (HDHP). This health plan is meant to take charge of future health expenses related to health, which helps the consumers be better prepared to avail better health care options. Therefore, the consumer prefers to opt the MSA with a ‘catastrophic insurance’ plan provided with a lower premiums, than the plans with lower deductibles. The main disadvantage that shows up for any Medical Savings Account holder is that, their medical expenditure can outdo their self- contributions. Although the MSA concept was prerequisite for Republican Party’s Health care agenda, the plan failed to happen in the period of 1990s.

The business referred to as ‘Archer MSA’ by Internal Revenue Service (IRS) is basically the sponsor of the HIPAA amendment creating the accounts in 1996. This being a pilot program was extended periodically by the US Treasury Department, up to 31st December, 2001. Henceforth, the current accounts have to be left open or can be converted into Health Savings Account.

In the case of being an employee, who wants to take the full Archer MSA deduction, the individual needs to have owned the policy for a period of one year, contrary to which the deduction is pro-rated. Explaining further, the contribution has to be the employee’s earnings during the current year. Self-employed individuals are allowed to contribute a sum equal to their net income. Following the incident of the individual’s demise, if the beneficiary is the spouse, the Medical Savings Account is owned by that person, and if the beneficiary is an individual other than the spouse, the assets are liable to become taxable to the beneficiary.