Update on MSAs, Now Called Health Savings Accounts (HSAs)

Congress enacted Health Savings Accounts (HSAs) in 2003 as part of the Medicare reform package. HSAs are essentially Medical Savings Accounts (MSAs), according to the Council for Affordable Health Insurance.  For information about HSAs, see:

• “Answering Your Questions about Health Savings Accounts” http://www.cahi.org/cahi_contents/
  resources/pdf/n125HSAQuestions.pdf
• “HSA Insider” http://www.hsainsider.com/
•  “Pros and Cons of Health Savings Accounts (HSAs)” http://www.forhealthfreedom.org/
  Publications/HealthIns/HSAsProsCons.html

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On August 21, 1996, President Clinton signed into law the Kassebaum-Kennedy bill that allows Americans to open a Medical Savings Account (MSA). The new law (Public Law 104-191) became effective January 1, 1997 and it restricts the number of people who can open an MSA to 750,000 persons who are self-employed or who work for a small business (50 or fewer employees). However, the 105th Congress has indicated that it might remove that cap, and allow all Americans to open an MSA.

What is a Medical Savings Account (MSA)?

Using your MSA funds, you pay for your first $1,400 worth of medical bills directly. MSA funds can be used to cover any medical expense that is currently tax deductible. The list of medical expenses is very broad. It includes (this is a partial list, the entire list includes over 100 deductions): acupuncture, anesthetist, chiropractor, contact lenses, dentist, eye glasses, medical doctor, psychologist, registered nurse and surgery.

MSAs create an incentive for you to become a smart health-care consumer because you get to keep money that is left over. You have two options for handling unspent MSA funds:

1. you can save money (tax-free) for future medical expenses and the interest that you accrue is also tax-free; or
2. you can withdraw money from your MSA at the end of the year, but would need to maintain a minimum balance.

MSAs may prove to be the most viable option for reducing our nation's health-care bill, while preserving patient choice and improving access to all types of health-care providers.

Who Would Choose an MSA?

Myths & Facts about MSAs

Myth #1: MSAs provide a tax break for the rich.

Fact: MSAs create a level playing field by giving self-employed and uninsured workers the same tax break as people who work for corporations. Today, individuals whose employers offer health insurance do not pay taxes on their health insurance. Yet those who work for companies that don't offer health insurance must pay income taxes on their purchase of health insurance.

MSAs promote tax equity by allowing all workers to save money tax-free for medical care, regardless of whether or not their employer offers health insurance.

Myth #2: Only healthy people will choose MSAs, thereby draining money from the sick.

Fact: There is no evidence that only healthy people would open an MSA. Sick patients would have an incentive to choose an MSA because they would receive money up front to pay for medical expenses, such as prescription drugs. Additionally, sick patients would have direct access to medical specialists and the freedom to choose their doctor. Moreover, to open an MSA, all patients must prove they have a catastrophic health insurance policy. This means that healthy people still contribute money toward a catastrophic health insurance pool -- they can't just take their health care money and run.

More Information on MSAs.

For a thorough understanding of Medical Savings Accounts (MSAs), see the book "Patient Power" by John Goodman, Ph.D. (President of the National Center for Policy Analysis and Gerald Musgrave. The book is available from the Cato Institute, 1000 Massachusetts Ave., N.W., Washington, D.C. 20001 or (800) 767-1241.

*Note: This article has been posted since March 10, 1998.