Medical Savings Accounts
Medical savings accounts became a way for Americans to prepare for health related expenses in 1997 under President Bill Clinton. A medical savings account (MSA) is a type of personal savings account (with tax deferred benefits) to work with a health insurance plan involving a high deductible. To use an MSA, you must first purchase a high-deductible health insurance plan, then establish the savings account where the money will be stored to specifically cover your medical expenses.
Like all health insurance coverage, the laws governing the amount to be allocated to medical savings accounts differ from state to state. Most laws state that if the money from a medical savings accounts is used for health expenses, then the money invested will not be taxable. If the funds are used for non-medical expenses, normal tax laws apply plus additional penalties may be levied.
Medical savings accounts were first introduced as a part of the Balanced Budget Act of 1997. The BBA launched it to show how it would work with existing Medicare benefits that those over 65 are entitled to. The goal of the plan was to provide the insured with more freedom to decide their own path for medical coverage. MSAs are provided through Medicare and Choice plan options, and the high deductible insurance may not exceed $6000.
At the same time, the Health Insurance Portability and Accountability Act (HIPAA) also launched their own test of medical health accounts. HIPPAs trial would match MSAs with private health insurance. To properly set up a medical savings account, the policyholder must opt into coverage with a deductible of $1,550 to $2,350 for individuals and $3,100 to $4,650 for families.
In both cases, the tax-deferred money stored in a medical savings account would be used to pay off the high-deductibles and standard health care costs. At this point in time, MSAs make up only a small fraction of all health care plans. The name medical savings accounts is not normally used anymore, as they have now evolved into what is known as health savings accounts.