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Medical Savings Accounts Basics


MSA’s are a great idea that have yet to gain wide acceptance.  As part of the Kennedy-Kassenbaum health reform bill, MSA's were introduced in January of 1997.  The IRS was set to cut off the issuance of MSA's at 750,000 plans in October.  With less than 250,000 plans created in 1997 and the market failure of MSA's in the group market, it is likely that MSA's will not be capped during this four year test program.


House Ways and Means Committee Chairman Bill Archer of Texas, introduced a bill in Congress in Feb '98 that would make MSA's available to an estimated 2.5 million federal employees.  This may be the psychological shot-in-the-arm to bring this valuable tool to the forefront of health options. 


We at InsuranceFirst Services believe that Masco are a "must consider" for family health plans.


Advantages of an MSA

Tax Savings

You can deduct MSA contributions from your adjusted gross income on your federal tax return even if you don’t itemize deductions. 

Interest Earned

Dollars left in your account will grow with tax deferred interest earnings.

Reduced Insurance premiums

When you change from a low-deductible health plan to a high deductible health plan, your insurance premiums are usually 20-50% lower.  You can use these savings to fund your MSA.

What is a Medical Savings Plan?

  • An individual savings account that you can use to cover your health care expenses.
  • The funds that are controlled by you, the account holder.
  • It is portable:  the funds remain with you regardless of employment.
  • Money not spent each year remains in the account for use in subsequent years.

The result?  You Save on Health Insurance Premiums.  For a federally qualified plan you must purchase and maintain a high deductible insurance policy.



Annual Deductible

No more than / 
No less than

Total out-of pocket expenses (no more than)


$1,500 /                   $2,250



 $3,000 /                  $4,500





Maximum MSA Percentage

Maximum Yearly MSA Contribution


$ 1,500


$ 1,462


 $ 3,000


$ 3,375

When you obtain a qualified MSA eligible medical plan you make a tax deductible deposit into an interest bearing MSA account. This account is held by a trustee who may charge $25 to $50 per year maintenance. The trustee issues you a checkbook and/or Debit (Visa-Mastercard) Card. When you have eligible medical expenses that are not covered by your medical plan you pay for them with your trustee account.


A 15% penalty would apply to funds withdrawn from the savings account, prior to age 65, and used for non-medical purposes, except in the case of death or disability.