Medical Savings Accounts

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Medical Savings Accounts

Abstract

Medical savings accounts (MSAs) were proposed in 1997 as a supplemental mechanism for financing health care services. Medical savings accounts are used to accumulate funds for health care expenditures just as individual retirement accounts (IRAs) accumulate funds for retirement. Changes in the Internal Revenue Service (IRS) Tax Code permit tax-deductible contributions by employees and employers to MSAs and allow interest and earnings to accumulate without taxation. Funds can be withdrawn without penalty only for medical expenses, for the purchase of health or long-term care insurance, or for other expenditures that are stipulated in the tax code. Each person owns and controls his or her account, regardless of changes in employment, and therefore has a financial incentive to make cost-effective use of health care resources. Coupled with high-deductible health insurance, MSAs empower cost-conscious patients in health care decision making, increasing competitive pressures to reduce health care costs.

Administrative costs and paperwork associated with health insurance have also been reduced, and some persons who currently do not have health insurance have been able to obtain some financial protection.

However, MSAs alone have not achieved the goal of universal access. The continued concerned is that MSAs have not helped unemployed persons or low- and middle-income persons who cannot afford to contribute to such accounts. These accounts, in some cases, have even resulted in reduced health insurance protection and greater out-of-pocket expenses for those most in need of health care services. Problems of adverse risk selection have also taken place when a healthy person has chosen to establish MSAs and obtain high-deductible health insurance; this choice has sometimes caused premiums to become less affordable for persons who desire traditional health insurance.

Medical savings accounts are tax-free or tax-deferred bank or personal savings accounts that can be used by individual persons and families to pay for their health care expenses. Also known as health savings accounts, medical IRAs, or Medisave accounts, MSAs are viewed as a way to restore individual control over health care expenditures by linking such expenditures directly to a personal medical bank account.

Proponents of MSAs argue that these accounts ...

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Online References

1. http://www.jpeek.com/msa.html

2. http://www.msahealthplans.com/howitworks.html

3. http://www.msahealthplans.com/FAQ.html

4. http://www.msahealthplans.com/guidelines.html

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