Medical Savings Accounts

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Medical Savings Accounts
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What is an MSA?

• A tax-favored account set up to pay for qualified
  medical expenses
• It allows for the build up of savings to pay for
  future medical expenses
• It is combined with a high-deductible health
  insurance plan

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Medical Savings Accounts

• Became effective January 1, 1997 as a four year
  experiment
• MSAs were extended by the 106th Congress until
  the end of December 2002

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Medical Savings Accounts

• Portability
• The funds remain with you regardless of
  employment

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Medical Savings Accounts

• The power to choose
• The health care professionals, services, and
  products that are best for you.

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Medical Savings Accounts

• The power to save money
• By purchasing a lower-cost, high-deductible
  insurance plan. Medical Savings Account funds
  pay for your qualified and routine health care
  expenses insurance kicks in when you have
  extraordinary health care expenses.

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Eligibility

• Insured or spouse must be either self-employed,
  or
• An employee of a business with 50 or fewer
  employees which offers a qualified MSA
  high-deductible health care plan

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Eligibility

• Must have medical coverage under a qualified MSA
  high-deductible health care plan
• And cannot be covered under any other health plan

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Types of Employers

• Small employer
• The definition of small employer is modified for
  new employers and growing employers.

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Types of Employers

• New employer
• New employer, a new employer is also considered
  a small employer for MSAs if he or she reasonably
  expect to employ 50 or fewer people this year.

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Types of Employers

• Growing employer
• Growing employer. A small employer may begin
  high deductible health plans and MSAs for his or
  hr employees and then grow beyond 50 employees.
  The employer will continue to meet the
  requirement for small employers if he or she

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Types of Employers

• Growing employer (continued)
• Had 50 or fewer employees when the MSAs began,
• Made a contribution for the last year the
  employer had 50 or fewer employees, and
• Had an average of 200 or fewer employees each
  year after 1996.

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Establishing an MSA

• An MSA can be established with a qualified MSA
  trustee or custodian.
• An MSA trustee or custodian can be an insurance
  company or financial institution as defined in
  IRS Code section 408(n).

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Establishing an MSA

• MSA Administration Services can be found on the
  Web site
• www.cahi.org/msa/msaadmin.htm

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High Deductible Health Plans and the MSA

• Are two separate products combined together
• Bring together health care and related financial
  products and services in a way that put the
  individual in control

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High Deductible Health Plans

• High deductible health plan (HDHP)
• HDHP may have a higher annual deductible than
  typical health plans

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High Deductible Health Plans

• The permissible range of deductibles and out-of
  pocked maximums are set by federal law
• HDHP has a maximum limit on the annual
  out-of-pocket medical expenses you must pay for
  covered expenses

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High Deductible Health Plans

• Health plan can be taken out by anyone who meets
  the companies underwriting guidelines
• The plan should be designed to meet the IRS
  requirements as HDHP.

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High Deductible Health Plans

• Simply having a qualifying high deductible plan
  is not sufficient to establish eligibility for
  favorable tax treatment of an MSA
• MSA eligibility requirements pertain to the
  Savings Account portion of the product

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Contributions

• There are two limits to the amount you can
  contribute youre your MSA
• Annual deductible
• Wages or compensation

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Contributions

• Annual Deductible
• You can contribute up to 75 of the amount of
  your annual health plans deductible (65 if you
  have a self-only plan) to your MSA. You must
  have the insurance all year to deduct the full
  amount.
• For each full month you did not have an HDHP, you
  must reduce the amount you can contribute by
  one-twelfth.

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Contributions

• Wages or Compensation
• You cannot contribute more than you earned for
  the year from the employer through whom you have
  your HDHP. If you are self-employed, you cannot
  contribute more than your net self-employment
  income. This is your income from self-employment
  minus expenses (including the one-half of
  self-employment tax deduction).

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Deductibles

• Qualified Major Medical Deductibles for 2001
• Single from 1,600 to 2,400
• Family from 3,200 to 4,800

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Deductible/Contribution2001

• Individual Deductible
  Annual Maximum Contribution
• 1,600 x 65 of annual deductible 1,040
  
• 2,400 x 65 of annual deductible 1,560
• Family Deductible Annual Maximum
  Contribution
• 3,200 x 75 of annual deductible 2,400
• 4,800 x 75 of annual deductible 3,600

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Future Limits

• After 2001 minimum and maximum deductible limits
  are adjusted based on the changes in the Consumer
  Price Index (CPI)

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Contributions/Withdrawals

• MSA Contributions will be 100 deductible from
  the gross income, up to certain limits. Any
  medical withdrawals that are used for a qualified
  medical expenses will be FEDERAL Income Tax-free.
  
• Withdrawals for non-qualified medical expenses
  will be subject to Federal Income Tax 15
  penalty. If your client is over 65 years of age,
  they will only be subject to Federal Income Tax.

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Contributions/Withdrawals

• Withdrawals pertaining to Death Disability of
  the account holder or family members covered
  under the policy are subject to Federal Income
  Tax only.
• Any interest earned and/or the appreciation of
  funds from the MSA account will be TAX DEFERRED
  if used for qualified medical expenses
• MSAs cannot be invested in Life Insurance Products

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Qualified and Nonqualified Expenses

• An eligible medical expense is defined as those
  expenses paid for care as described in Section
  213(d) of the Internal Revenue Code.
• Only expenses incurred while you are
  participating in the reimbursement account are
  eligible for reimbursement.
• Handouts are available.

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Questions/Answers

• Can a person have an MSA and an IRA?
• Yes
• Can MSA money be rolled into an IRA?
• No
• Are lump sum deposits permitted?
• Yes

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Questions/Answers

• Who is responsible for your MSA?
• You
• What is the deadline for tax break contributions
  into an MSA?
• April 15
• Who receives MSA money when insured passes away?
• Spouse or other beneficiary

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Questions/Answers

• Does an employer have any liability on employees
  MSA?
• No
• Can a persons MSA be forfeited?
• No
• Can an individual have more than one MSA?
• No

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Questions/Answers

• Must one contribute the maximum amount to the
  MSA?
• No
• Must one contribute every year to their MSA?
• No
• Can one have PPOs and EPOs with the MSA?
• Yes

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Questions/Answers

• Does the money in the MSA that is not used roll
  over to the next year?
• Yes
• Does the tax deferred money earn interest like an
  IRA?
• Yes

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MSA a Savings Plan that is...

• Income tax deductible
• Earns interest on a tax deferred basis
• Withdrawals are tax free when used for qualified
  medical expenses

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Medical Savings Accounts

• The power of financial security and retirement
  planning