Medical Savings Plan

The Medical Savings Account, referred to as an MSA or Archer plan, was the first medical savings plan to help defray the rising cost of medical procedures. This plan started in the 1990′s and was only available to the self-employed. While the pilot program on the federal level passed in 1996, many states already had their own version of the plan.

The concept for these savings plans is simple. It allows the person to supplement a high deductible health insurance plan and control the payment for medical procedures. In order to qualify for a medical savings plan, the individual or family had to have a high deductible health policy. The owner of this policy then could put funds into a separate account that grew tax-free as long as they used the funds for medical needs.

The medical needs that qualified under the medical savings plan were far broader than most insurance companies allowed in their policies. They included such items as eyeglasses, dental and even long-term care premiums. This made it extremely beneficial to those individuals who didn’t have many medical needs but often had regular dental check-ups, physicals or simply wanted to purchase long-term care policies.

In 2003, the medical savings plan changed from the MSA that existed only for the self-employed, to the HSA, health savings account, that was available for individuals and employer sponsored groups. The new health savings account was quite different from the flexible spending account offered by employers in the past. If you didn’t use the funds in a flexible spending account before the end of the year, you no longer kept the funds but started again the following year with the same amount available. The funds in the Health Savings Account however, were part of a true medical savings plan. Once the money went into the account, it belonged to the owner of the account and passed onto the next year if not used.

A savings plan offers great benefits for those who are young with few medical problems or even older individuals that have limited health issues or higher incomes. There’s no need to wait for an approval from an insurance company because the funds are available immediately. If you believe in alternative medical procedures such as acupuncture, herbal medicine or massage therapy, you could pay for the procedure from the fund. However, it would not count toward the deductible of your health insurance policy in most cases.

A medical savings plan that still has funds when the owner passes is part of the estate or given to an assigned beneficiary. At that point, however, the plan ends and the funds revert to the beneficiary and receive taxation.

A medical savings plan can help reduce the cost of medical insurance. As the savings grow inside the plan, the individual can increase the deductible and save more money on the cost of health insurance. Remember, the higher the deductible, the lower the premium becomes. The Health Savings Account combined with a high deductible health plan is a benefit for almost all healthy people and should be a consideration when purchasing health insurance. Those with high amounts of annual medical costs may find it more beneficial to use the traditional plan rather than using medical savings.