Medical Savings Accounts (MSAs) are promoted as the salvation of small businesses in desperate need of affordable health insurance plans. Forbes called MSAs "Super-IRAs" and Business Week wrote "almost too good to be true". Kiplinger's Personal Finance Magazine said “if you are self-employed, you should jump at the chance to open an MSA”. The American Medical Association published a series of articles strongly supporting MSAs and these plans are promoted on the AMA's insurance Web site. Both the Clinton and Bush administration and almost all federal lawmakers on both parties include MSAs as part of the solution to the national health care crisis. The insurance industry and the employee benefit industry strongly support the use of MSAs. Business think tanks across the country repeatedly focus on ideas to expand the use of this promising financial tool in the marketplace.
Here are some things you should know before you consider switching health plans to a MSA:
1.MSAs cut overall long term health costs by about 1/3 for most people but they are not designed to cut your immediate cash outlay for medical plan. For example, if your family pays $650 per month for total medical and dental coverage right now, you should still plan to pay $650 per month in a new MSA plan. The only difference is that about half of your cost will go directly into your own account and only about half will go to the insurance company. Over the long run, your account will be spent more effectively on your behalf than the money paid for insurance premiums. But it takes time (usually about a year) to build up enough reserve in your account to be fully secure using higher deductible insurance.
2.At least 1 in 3 people who apply for a MSA plan do not qualify or are not good candidates for a MSA because they do not achieve any net savings in overall health costs when switching to a MSA. Those most likely to save the most money are young, self-employed, and healthy with historically few medical expenses. Those over age 60 generally do not realize any savings, but may achieve an improvement in the quality of health care by moving away from the managed care healthcare systems to a private pay system. Qualification, rating and enrollment for individual and group MSA plans are handled by MedSave.com by telephone at (877) 529-7435.
3.MSAs put individual consumers and their personal physicians back in control of their own health care. This also means that each individual must be responsible for his/her own health care decisions. This approach of self-reliance is not always popular or appropriate for everyone, especially those who have become comfortable with HMO plans. MSAs are designed to encourage efficiency and cut waste in health care. But this also means that there is a chance that you may decide to bypass some medical testing or treatment in order to save your MSA money.
4.MSAs reduce income taxes. The amount you elect to deposit into your MSA account each year is deducted directly from your taxable income in the same manner as a IRA account – regardless of whether you spend it or just save it. Interest and investment earnings in a MSA are also tax-free. For the average person, for every dollar that you put into your MSA, your taxes will be reduced by about $.25 even if you do not incur any medical expenses.
5.You must have a qualifying MSA-type health insurance plan in place first before you can open a Medical Savings Account. These insurance plans are available to most self-employed persons (one person businesses) and small business firms with 2-50 employees.
6.It is possible to open up a MSA Account with a separate company than your MSA insurance but this is not recommended and will certainly cost you significantly more. It always makes more sense to have your MSA deposit account and your insurance with the same company.
7.It takes 4-6 weeks to actually get a MSA plan started and delivered to you. Short term coverage is available during the interim period at
www.medsave.com . Coverage may be bound or issued within 24 hours but it takes longer to receive ID cards and a printed policy.
8.The most popular type of traditional MSA plans are not available to individuals and businesses residing in AK, HI, KY, MA, ME, NJ, NC, NH, NY, RI, UT, VT and WA. In those states, it is best to check with your local managed care plan providers for MSA options.
9.You should not use a MSA plan when the management of your existing medical costs is more important to you than achieving a savings in insurance premiums. Do not change health plans in the middle of ongoing medical treatments, when a major health issue has been diagnosed, or when any family member is pregnant.
10.There is usually no fee or commissions for medical savings accounts although some custodial firms do charge a fee. Completely free no-load Medical Savings Accounts are available at
www.medsave.com . The amount that you deposit and withdrawal from your MSA are totaling at your discretion (up the maximum deduction allowed each year).
About the Author
Tony Novak, MBA, MT is a writer and financial adviser in Narberth, PA. His businesses MedSave.com and reedom Benefits Association provide onine benefits enrollment and planning advice to individuals and businesses in 47 states.
