A Medical Savings Account permits eligible individuals to establish a tax-deferred medical savings accounts (MSAs) to pay medical expenses in conjunction with a high-deduction health plan through a trust or custodial account. On January 1, 1997 a pilot program began that was limited to four years and 750,000 policies under the program. The pilot program must be extended by the IRS/US Treasury Department on a periodic basis.
To be eligible for a MSA, an individual must be either employed by a small employer with 50 or fewer employees that establish a high deductible health plan, or a self-employed person covered by a high deductible health plan. One of the disadvantages of the MSA is that both the employer and the employer may not contribute to the MSA in the same year. In 2003 the Health Savings Account (HSA) was created which is less restrictive less MSA’s. Since HSAs are a more widely available and improved version of the MSA, the original program is by and large obsolete. MSAs are still available, but there are only a few institutions that will open new MSA accounts. Today, they are called Archer MSAs.
MSAs are far more restrictive than HSAs. The intent of Congress in passing the HSA legislation was to provide a financial incentive for employers of all sizes and individual consumers to provide health insurance and put health care decisions back in the hands of the consumers.
