Individual Medical Savings Accounts

Personal Medical Savings Accounts

As the cost of healthcare continues to rise, consumers are looking for ways to reduce their medical costs. While there aren’t many answers out there, one increasingly popular option is to open medical savings accounts, also know as health savings accounts.

What are medical savings accounts?

• Medical savings accounts (MSA’s or HSA’s) are not health insurance; rather, they are used to supplement existing healthcare coverage and ultimately reduce the cost of medical expenses.
• Here’s how medical savings accounts work: Participants switch from paying a high monthly health insurance premium (with a low deductible and low co-pays) to a high deductible policy. A medical savings account is then opened, into which deposits are made.
• Medical savings plans cover smaller expenses (until the deductible is met), while the higher deductible takes care of any emergencies or larger medical expenses.
• Moreover, deposits made into medical savings accounts are 100 percent tax-deductible.

Are Medical Savings Accounts Necessary?

• It’s a simple, efficient way to save money on your healthcare costs.
• Medical savings accounts provide more flexibility and control over how you handle your medical expenses.
• Medical savings plans also give you the freedom to choose your own physician, usually from a large PPO directory, as opposed to the restrictions of HMO-type plans.

What Else Should I know About Individual Health Savings Accounts?

• Any money that doesn’t get used remains in the account and draws interest on a tax-favored basis. The money can go toward future medical expenses or retirement.
• Eligibility for medical savings accounts used to be much more limited, consisting primarily of the self-employed and people who work for businesses with 50 employees or less.
• Eligibility expanded, however, in 2003 after President Bush signed new health savings account legislation into law.