|
|
|
|
We have tons of info here. Use our Search function to find it
fast....
|
|
|
The Basics
MSA - A health-care plan that can save you thousands
NOTE: MSAs have been
supplanted by the HSA.
Click Here
Park a few thousand dollars in a Medical Savings Account
to cover routine expenses and the savings are huge: Contributions and income
are tax-free -- and cheaper premiums can cover your investment. But not
everyone can sign up.
By Terry Savige
If you’re one of the estimated 45 million Americans who are not covered by
health insurance, maybe you should take the time to take a look at Medical
Savings Accounts. MSAs are available to small businesses and self-employed
people who want complete insurance coverage, with a choice of health-care
providers, at a low and predictable annual cost.
Why haven’t you heard of MSAs? Probably because this revolutionary insurance
program has been offered only on a trial basis, and only since January 1997.
Congress has renewed the program through Dec. 31, 2003, and renamed the
plans Archer MSAs in honor of Rep. Bill Archer, R-Texas, who has long
supported the program. The Bush administration is promoting the accounts as
a tool to fight rising health-care costs.
Insurance companies and financial institutions are now starting to climb on
the bandwagon to provide the combined coverage of a tax-free savings and
investment account with a high-deductible, complete-coverage
health-insurance policy. That’s the essence of an MSA, and here’s how the
idea works.
The concept
Let’s start with the typical health insurance plan offered by a small
business to its employees. It probably offers a choice between an HMO (with
limited medical options and provider choices) and a more traditional health
insurance policy that has a $250 deductible and an 80/20 co-payment. (That
means the employee pays the first $250 of medical costs during the year and
20% of subsequent bills up to a certain amount. Families sometimes pay a
higher deductible -- perhaps three times the individual deductible.) Most of
these policies cap the employee’s out-of-pocket expenses at $1,250 per
person.
The HMO is cheaper to operate, which is why a lot of workers with families
use them. The deductible and co-payments are low and sometimes non-existent.
Physicians and patients alike often find an HMOs bureaucracy extremely
frustrating to deal with, which is a major reason why Congress is now
debating the pros and cons of a patients’ rights bill.
The traditional health policy costs the employer what can seem like a small
fortune. And, as we know, rising medical costs push an employer’s health
insurance premiums higher every year. As a result, many small businesses
don’t offer any medical coverage to employees. And many self-employed people
can’t afford coverage.
But just as with your homeowners insurance, one way to save money on your
medical insurance is to increase your deductible -- the amount you agree to
pay. If you increase the deductible on your homeowners or auto-insurance
policy, the premium drops substantially. That’s because not only does the
insurer have less exposure, but because the cost of processing small claims
is a big part of your insurance premium. That leads us to the first half of
the medical savings account concept.
The high-deductible health insurance policy
Let’s suppose you increase the deductible on your health insurance policy.
You might not mind doing that -- if you knew that every single medical
expense above that deductible would be paid in full by the insurance
company, with no co-payments required. And if you knew your premiums would
drop by as much as 50%! That’s the first step in creating an MSAt.
The employer, or sole proprietor, signs up for a high-deductible health
insurance plan -- with perhaps a deductible of $4,500 for a family or $2,250
for an individual.
The monthly premium cost for that high-deductible medical insurance plan
might be $377 for a family of four, versus $729 for the traditional plan.
That means a savings of $4,224 annually on insurance premiums -- more than
enough to fund an MSA, as I'll explain in a minute. Not only is the annual
cost lower, but the choices are greater. Under this high-deductible plan,
the family gets to choose its own doctors, hospitals and medical procedures.
After all, the first $4,500 a family spends comes out of its own medical
savings account.
If that $4,500 first-dollar exposure sounds scary, don’t forget that under
the traditional plan, the family might have to meet the $250 deductible for
at least three family members before the 80/20 payments would kick in. So
they’d be exposed for $750 in out-of-pocket expenses, plus another $1,000
per person in co-insurance expenses -- the 20% for which the individual is
responsible.
So if the family incurred significant medical expenses in one year under the
traditional plan, they’d be paying $3,750 anyway. And those payments would
be made with after-tax dollars, not the pre-tax dollars growing in their MSA.
Still, it sounds frightening to be exposed for $4,500 of medical costs --
until you realize that 70% of insured Americans don’t even meet or exceed a
$500 deductible in one year. And the real fear with medical expenses is not
the deductible amount, but the really huge medical costs that can completely
devastate a family. Those are fully covered with the high-deductible
insurance coverage in an MSA.
The tax-deductible, tax-free savings account
Even so, that $4,500 for a family or $2,250 for an individual is a steep
burden for many people to contemplate. So here’s the second part of the
medical savings account plan, which makes whole concept revolutionary. The
government is giving you -- or your employer -- a tax deduction to set money
aside in a special tax-free savings account to pay for some of that $4,500
in medical-expense exposure.
Where will that money come from? Well, the employer is going to save so much
money on his annual insurance costs that he may be willing to fund a part of
this MSA. The incentive: The money the employer puts into each employee’s
account produces a tax deduction for the business. The employer’s
contribution to the MSA does not count as income for the employee, so
there’s no need for either boss or worker to pay taxes on that benefit. And
if the boss sets up the plan, but doesn’t make a contribution, the employee
can take a tax deduction for the entire amount he puts into the medical
savings account.
There’s a limit to how much can be put into the MSA account each year. It’s
75% of the deductible for a family, or 65 percent of the deductible for an
individual. That means in our example, the employer or employee could set
aside $3,375 for a family of four, or $1,462 for the individual, as a
tax-deductible contribution that will grow tax-free inside the MSA.
Now, here’s the best part. If you don’t spend all that money on medical
expenses this year, the balance will roll over into the subsequent years.
(This is not like a medical savings account you see in big company’s
cafeteria benefits plan. Those are a use-it-or-lose-it proposition.) The
money can be withdrawn at any time tax-free to pay for medical expenses.
After a few years, you’re likely to build up enough savings in your MSA to
cover any year in which you have an unexpected medical expense that requires
you to pay the first $4,500.
Remember, all the money comes out tax-free at any time to pay for qualified
medical expenses. And with an MSA, those qualified expenses include things
like glasses, laser eye surgery, dental fees, teeth implants, hair
transplants, and a host of other “medical expenses” that would not be
covered under a traditional plan! (Money withdrawn for other than medical
purposes is considered taxable ordinary income, plus a 15% federal tax
penalty.)
The incentives
Let’s take a look at how this medical savings account concept changes the
incentives throughout the entire health insurance system:
The employer can offer a health-care benefit to retain valued employees --
at a reasonable cost that’s tax deductible.
The employee -- or sole proprietor -- has an incentive to keep health-care
costs down. Since the first dollars spent by the employee are his own -- and
could have been growing inside the MSA -- he or she will have the incentive
to stay healthy through preventive medicine and become cost-conscious in
choosing providers. After all, money not spent grows tax-deferred inside the
MSA account.
The health-care system benefits through less costly claims processing.
Individuals will pay their own small health-care bills out of their MSA,
with no multiple insurance claims to file. Pressure to hold prices down will
come from consumers who have an incentive to spend less.
Why you don’t hear about these accounts?
In a word, politics. Congress started the program and capped the allowable
total enrollment at 750,000. Fewer than 200,000 Americans are actually
enrolled in plans, largely because they’re limited to such a small group –
the self-employed and employers with fewer than 50 workers. And when your
company hires its 51st worker, it can’t offer the program. Large companies
still can’t offer them, and some states actually had laws that prevented
their establishment. Medical savings accounts have some severe critics,
including Consumers Union, the parent of Consumer Reports. They believe the
accounts help the healthy and the affluent will drive up health care costs
for those who can’t afford the high deductibles.
The program looked like it would die last year until Congress renewed it. As
Congress wrangles over new patients’ rights legislation, Republicans are
trying to get provisions put into the legislation to expand MSAs.
How to get started on an MSA
The MSA package requires two ingredients: the high-deductible insurance
policy and a custodian for the tax-free savings/investment account that goes
with it. Plus, there has to be an easy way to access the money in that
savings account to pay for the employee's medical bills. That trio of
requirements has complicated the growth of the entire MSA concept. So where
do you turn for help in getting this plan started?
The industry has set up a Web site created by the National Association of
Alternative Benefits (See link at left.) It has a somewhat dated list of
providers, listed by state. Other Web sites have been created by individual
insurance agents and by private companies, including Golden Rule Insurance
and Fortis. (See links at left)
One enterprising company has managed to make an easy link between these
high-deductible insurance policies and the approved custodians for the
actual savings or investment account. FlexMSA (owned by Flexible Benefits
Service Corp.) has created a turnkey plan and offers a MasterCard that can
be used to pay for medical services right out of your MSA savings account.
That makes paying claims and bookkeeping easy chores. (See link at left.)
FlexMSA works with major insurance companies, such as Blue Cross/Blue
Shield, Fortis and Golden Rule, and with Mellon Bank as custodian of the
saving account portion of the plan. In fact, under the plan, once the
unspent assets in the MSA reach $3,500, they can be invested in a choice of
mutual funds offered through Dreyfus.
What to do now
Check it out. Show this article to your boss. Or if you’re self-employed,
set up a plan on your own. If you’re paying too much money for restricted
coverage under a traditional plan, the MSA might be the perfect answer to
your health insurance needs.
© Copyright 2003-2008 Please do not reproduce or copy without written permission.SelfEmployedWeb. All
Rights Reserved
|
|
|
