Medical Savings Account (MSA)

Medical Savings Accounts (MSA) are the predecessors of Health Savings Accounts (HSA) and have similar deductibles, tax treatment, and may act as a retirement account. 

First created by several states in the early 1990s, by 1996, these plans became a Federal pilot program within the Health Insurance Portability and Accountability Act (HIPPA). MSAs required annual Congress reauthorization and ended in 2003.

Medical savings accounts (MSAs) could be funded by the individual or by the employer but not by both. MSAs were limited to the self-employed or employer groups with 50 or fewer employees who were enrolled in a high deductible health insurance plan (HDHP) and met other eligibility requirements. 

MSAs and later Health Savings Accounts (HSA) were tax-deductible savings accounts which the owner could use for qualified health expenses without incurring taxes or penalties. Both require the coupling of the account with an HDHP. Also, both serve as retirement accounts which could be drawn from without penalty at age 65 and older.

Self-employed individuals could create Medical Savings Accounts, known as Archer MSAs, which would have worked in the same way as a group MSA. The name honors Bill Archer, the congressman who sponsored the amendment which created them. The program to create an Archer MSAs expired in 2007. However, existing accounts may have continued funding and use.

In 2003, the Medicare Prescription Drug Improvement and Modernization Act allowed the creation of Health Savings Accounts (HSA). These accounts became a permanent feature of the tax code. 

Accounts contributions reduce the federal income tax adjusted gross income and are allowed for both standard and itemized deductions. Also, similar to an IRA, funding can be anytime between the beginning of that calendar year and before the tax deadline for that year.

The HSA is a fully vested tax-advantaged account and not subject to forfeiture if funds remain unspent at the end of the year. Using an HSA, an individual can pay for medical and dental expenses. MSA qualified health insurance plans generally had to have a minimum deductible level of $1,700 for an individual and $3,450 for families. HSA qualified HDHP deductibles are updated each year. 

HSAs are available to any eligible individual with an HDHP regardless of whether they are currently working, self-employed or employed by a small or large company. 

The employee and the employer will fund the account, and account funds cannot pay for insurance premiums. Annual contributions may not exceed more than 65% of the health plan deductible for individuals and 75% for families. Contribution levels readjust each year, and eligible individuals and families may contribute up to 100% of the allowable contribution. Also, HSAs allow for catch-up contributions for qualified individuals age 55 to 65 years old.