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Healthcare
Medical Savings Accounts |
Medical Savings Accounts (MSAs) are wonderful
inventions. BUT ONLY CERTAIN PEOPLE QUALIFY TO HAVE ONE! Per the IRS, the only people who
may have MSAs are those who are:
1. An employee of a small company (50 or fewer) or self-employed.
2. Covered by a high deductible health plan (HDHP) with a deductible of at least $1500
(but not more than $2250) for singles and a deductible of at least $3000 (but not more
than $4500) for families.
Also take note that MSAs are almost nothing like Flexible Spending Accounts (FSAs). FSAs
have a "use it or lose it" provision; MSAs carry over from year to year and are
able to be withdrawn at retirement as an IRA.
MSAs can be contributed to by either the employee or the employer (but not both in the
same year per the IRS), while FSAs are employee-only. FSAs contributions can be as high as
the employer's plan allows, MSA contributions are limited based on the deductible of the
adjoined health plan. FSAs can exist with any health plan; MSAs can only exist in
conjunction with a HDHP.
HMO coverage rarely has deductibles high enough to meet these standards. While MSAs can be
used for any government defined medical expense (the list is quite extensive and much
broader than most health plans-- see IRS publication 502), the maximum annual contribution
is 65% of the annual deductible for singles and 75% of the annual deductible for families.
Deductibles are PRO RATED, so do not think that you can contribute the entire allowed
amount if you start the plan mid-year.
One other caution. If you are able to and do get into a HDPH for the purpose of using an
MSA (not a bad deal--the total paid out is the same, but you have better coverage), be
aware that, since you can use the MSA for any "gov't-defined" medical expense,
you could conceivably spend the MSA on things NOT covered by your deductible, and then
also have to PAY the deductible if someone had major surgery in December and you had spent
the whole thing on radiokeratotomy or orthodontics in October.
I set up a HDHP for our small company last year, and the premium for the HDHP is extremely
low as it ends up being used only when there are extensive medical expenses during a year.
The MSA is available for all other claims, and it actually works out that no one has yet
needed to spend money out-of-pocket for "normal" medical expenses (the employer
contributes to the MSA rather than the employee in our case) because no one has had high
medical expenses (surgeries or whatnot).
After a couple of years, if health continues to hold out, there will be more money in
everyone's MSA than the amount of one year's deductible. Contributions will continue, and
the money will accumulate.
In truth, the biggest drawback that I have found is in explaining it to the employees, and
that they MUST file Form 1040 to do their taxes (not 1040-A or 1040-EZ) along with Form
8853.
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