Medical Savings Accounts Information Articles | Taxes

By: J.Morgan

Today, more than ever individuals should be concerned about their retirement savings, and if they will have enough to see them through their golden years. Currently, social security benefits are all that many Americans have to see them through their retirement, and with inflation, escalating medical expense, and prescription drug costs, many senior citizens simply cannot make ends meet on their fixed incomes. In addition to these concerns, many of our citizens known as the "baby boomers" are reaching retirement age. With more and more of our population retiring, the need for adequate funding is an ever increasing concern for all individuals.

MSAs, or medical savings accounts, are an excellent tax deductible way to save for your future, and provide for emergency expense at the same time. Prior to 1999, there was no such creature as an MSA, nor was there the existence of a 100% tax deduction for medical insurance premiums paid by an employer. Today, thanks to a bill passed in Congress, all taxpayers have access to MSAs as a way to save and look ahead to possible medical emergencies. What benefit exactly do MSAs provide? MSAs can provide a gap between individuals who are uninsured, and the ability to afford adequate health care. The contributions to MSAs are tax deferred, and this acts as an additional incentive for individuals to make a contribution.

With all the fluctuation of the stock market, investments that individuals had in the stock market, may or may not still provide adequate funding for their retirement. Many individuals that had retired and placed their funds in stocks have now found that they must return to work, even if only part-time, in order to maintain their current standard of living. That’s a place no retired individual wants to be. The MSA plans offer less of a return, buy they’re also a much safer option.

Today, the MSA language is being replaced by the HSA language. What are their differences? The original HSA was created during the Medicare Reform Act of 2003, and the currently combine high-deductible health insurance with a personal savings account for medical expenses. The money that an individual deposits in the HAS is allowed to grow tax-free, and can be used penalty free to purchase health care, or pay for services not covered by their insurance plan. Any monies not used, are allowed to remain in the HSA completely tax free, for an indefinite number of years. There aren’t any basic differences, except that the HSA bill allows for more freedom of choice in making decisions about the withdrawal of the saved monies, and the linking of a savings to the requirement of obtaining health insurance.

Many supporters of the HSA reform have suggested that a couple of things happen in order for the individuals who own the HSAs to have more control over their medical decisions, and to encourage more savings, and more competition among insurance companies. First, they would like to see the individual contribution limit increase to $8000 for singles and $16,000 for married couples. Second, they would like to eliminate the requirement that HSA holders obtain health insurance, and instead allow tax-free withdrawals from the HSAs to pay for health insurance premiums as well as health care.

Would this help a struggling healthcare reform? Quite possibly, since more of the public would be encouraged to participate if the health insurance premiums and health care services could be paid for with tax-free dollars. The biggest catch to the passage of such a proposal is the loss in revenue to the government. Since individual taxpayers account for over half of the government’s revenue each year, making health savings accounts a pre-tax deduction, and then also making the withdrawal of such monies tax free if used for health insurance or medical expense, would virtually eliminate any benefit to the government for revenue tax.

Is a program such as this beneficial? Yes, it would tremendously benefit the taxpaying public; but will it ever pass through a Congress concerned with revenue increases each year? Probably not.