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Health Savings
Account (HSA) |
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This
is a brief summary of an MSA. As of October 31, 2003, this
type of account has not received approval by the federal government to
continue beyond December 31, 2003.
MSAs have been replaced by Health Savings Accounts (HSA) that will
provide similar features and offer much more flexibility. These pages
will be updated soon to reflect the new legislation that was enacted
recently. |
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What Is An MSA? |
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| An MSA is a way to pay for medical expenses with tax deductible contributions, similar to an Individual
Retirement Account (IRA), but instead of saving for retirement, the money is
set
aside primarily to pay for medical expenses (however, any unused money can
also be used to supplement your retirement income at age 65). It consists of two parts: |
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A High
Deductible Health Plan (HDHP, described below); and
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A
savings account
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Qualifying For An MSA |
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qualify for an MSA, you must be one of the following: |
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A
"small" employer is one that had an average of 50 or fewer
employees during either of the last 2 calendar years. A new
employer can also qualify if expecting to employ 50 or fewer people
during the current year. |
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Advantages Of An MSA |
You may enjoy several advantages from having an MSA. |
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Interest or other earnings accumulate tax-free on the money in
your account used to pay for qualified medical expenses, or
tax-deferred for
non-qualified expenses described below.
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Money is used tax-free to pay for qualified medical expenses
(click here
to see which medical expenses are qualified from pages 4 through
12 of IRS Publication 502 "Medical and Dental Expenses")
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Tax
deduction for contributions you make, even if you do not
itemize your deductions on IRS Form 1040, and contributions can be
made each year even if you don't use all the money in your account;
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Money remains in your account year to year until you use it.
The money can be used to supplement your income at retirement age
65
(subject to regular income tax), and to pay insurance premiums for
a qualified long-term care policy, health care coverage while you
receive unemployment benefits and COBRA continuation of coverage.
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The
account is "portable" so it stays with you if you change
employers or leave the work force.
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Here's How Setting Up An MSA Works |
You buy a qualified individual or group High Deductible Health Plan
(HDHP), and then set up an MSA savings account through a custodian or
trustee; these are usually banks, insurance companies or other
organizations approved by the IRS. Once more information becomes
available about the continued availability of MSAs or HSAs, we'll
provide a link to organizations that provide MSA accounts.
A HDHP has a higher annual deductible than typical health plans (which
means the premiums are less expensive), and has a maximum limit on the
annual out-of-pocket medical expenses (including the deductible) that
you must pay for covered expenses. Shown below are the HDHP limits for
deductibles and out-of-pocket expenses for 2003.
"Self-Only" means a single person. "Family" means 2 or more
individuals, e.g., husband and wife, parent and child, parents and
child(ren). The HDHPs we represent all qualify according to the limits
shown. |
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Type of
Coverage |
Minimum
Annual Deductible |
Maximum
Annual Deductible |
Maximum
Annual Out-of-Pocket Expenses |
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Self-Only |
$1,700 |
$2,500 |
$3,350 |
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Family |
$3,350 |
$5,050 |
$6,150 |
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Tax-Deductible Contributions |
You, or your employer (but not both), may contribute up to 65% (single
person) or 75% (family) of the annual HDHP deductible on a
tax-deductible basis. For example, if the HDHP has a $1,700 deductible
for a single person, the tax deductible contribution is $1,105 per
year ($1,700 X 65%). If the plan begins in the middle of a year, the
tax-deductible amount is 1/12 times the number of months left in the
year. In the above example, if the plan begins July 1, $552.50 would
be tax-deductible ($1,105 divided by 12 months = $92.08 X 6 months =
$552.50). |
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How Benefits Are Paid |
Using the above example, any qualified medical expenses under $1,700
would be paid from the MSA account. Above $1,700, the HDHP would begin
paying benefits. The way you'd pay for the first $1,700 would depend
on the MSA custodian or trustee you choose: some offer checks, or a
VISA/MasterCard debit card, or both, that can be used when you receive
covered medical services or supplies.
Additional, detailed information will be posted to this page once we
know more about the continued availability of MSAs or HSAs. Please
call us in the meantime if you have questions. |
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