Health Savings Account vs Medical Savings Account

In 1997, President Bill Clinton signed into law the Kassebaum-Kennedy Bill granting Americans the right to open medical savings accounts to help offset the expenses of health care insurance. They MSAs worked in conjunction with high deductible health insurance policies and the money stored in the account had to be used to either meet the deductible or pay for other routine medical expenses.

Over ten years ago, both Medicare and HIPPA launched medical savings account programs to test the effectiveness for reducing the nation’s total health-care expenses. Additionally, medical savings accounts granted access to all health-care providers by allowing policyholders to have their freedom of choice while planning their own health care strategy.

Medical savings accounts are the official forerunner for what eventually evolved into the more commonly known health savings account. In 2003, Congress passed a Medicare reform package that took the core functions of a medical savings account and renamed them Health Savings Accounts (HSAs). Health savings accounts are medical savings accounts with fewer restrictions on uses and taxes.

Basic differences between health savings accounts (HSA) and medical savings accounts (MSA) are:

  • Lower HSA deductibles
  • HSAs allow a 100% contribution of the full deductible while MSA only grand 65%
  • The unused portion of a HSA rolls over from year to year and can follow an employee from job to job
  • HSAs apply to all employers while MSAs typically only apply to employers with staff of 50 or less
  • MSA is solely funded by employees or employer contributions while employers and employees can make contributions to HSA plans
  • HSAs have a lower tax penalty of 10% for non-health distributions made before death, disability or age 65 while the charge is 15% for MSAs

Many people opt into health savings plans as a way to lower their large insurance premium expenses. High deductible health insurance plans tend to charge lower monthly fees then their low deductible counterparts. If you think this is a strategy you want to take advantage of, speak to your local tax preparer to figure out the laws of your state.