What is a medical savings account?

A medical savings account is savings plan in the Unites states of America in which the account holder can accumulate tax deferred deposits. No tax will be charged on the amount so long as the account holder spends the amount on medical emergencies and expenses. These expenses incurred have to be from a certified medical practitioner. The medical doctor should be a qualified practitioner with a legally accepted license. For the medical savings account to be functioning fully one has to have a health plan which is also known as high deductible health plan or HDHP. The money collected in the medical savings account can also be converted into a standard IRA savings account once the holder reaches a particular age. The amount of money set aside for these medical emergencies in the savings accounts don’t impose a restriction on the standard IRA contributions.

The funds in the medical saving accounts will cover most of the expenses which would stem out of medical diseases including physical disability, dental problems and care, eye sight related troubles and long term hospital care. This facility is applicable even if you have medical insurance facility with you. First the insurance amount will come into the picture and will cover the costs. In case the costs exceed the amount of medical insurance given to a particular person, high deductible health plan or HDHP will cover the remaining amount. Whatever remaining money one has in the Medical savings account, it will be carried forward to the next year. This amount can also be withdrawn as taxable income.

The medical savings account has become redundant a few years back. In its place we now have the Health Savings Accounts (HSAs) which is an improvised version of the medical savings account. These were created as a part of part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.the HSAs are a more readily accepted versions of the earlier program. The only exception to this is the state of California where medical account contributions are still deductible on a state level and HSA contributions are not prevalent.

You can pay expenses for long term hospital coverage, health care benefits received during periods of unemployment under the medical account savings. The only possible risk is that the account holder may need more money than what is there in the account to meet his medical expenses.