Medical Savings Accounts

A medical savings account, also referred to as an MSA, is a combination between a medical insurance policy with a high deductible and a tax-deferred savings account that is usually offered by employers as a component of employee benefits package. In basic terms, medical savings accounts allow individuals to save for healthcare and medical expenses without incurring taxes that would usually be charged within other types of accounts. Funds within a medical savings account can be used to pay for a plethora of over 100 different types of medical services, including but not limited to primary care practitioners, psychologists, optometrist appointments, contact lenses/glasses, dental services, surgery, chiropractor services, anesthesiology, and even acupuncture. Medical savings accounts offer various benefits in comparison to and in addition to conventional health insurance policies, some of which are reviewed below.

How Medical Savings Accounts Work
With a medical savings account an individual can deposit $1400, or a family can deposit up to $3375 to fund the deductible, which basically covers the first $1400 (or $3375 for a family) worth of medical expenses. Any funds over the $1400 is used to add a health insurance policy that completely covers all medical expenses after the aforementioned deductible (of $1400) is deposited. In other words, you would be obligated to pay for up to $1400 in healthcare expenses, after which a health insurance policy would cover all other costs. As a medical savings account holder you can do one of two things with the additional funds left in the account after the deductible has been met – you can choose to leave the money untouched and untaxed for possible medical expenses that could occur in the future, or you can choose to withdraw money from the medical savings account at the end of each year, so long as the minimum balance is maintained. However, it should be noted that any nonmedical withdrawals are fully taxed and incur a hefty 15% penalty tax rate.

Reasons to Use Medical Savings Accounts
Medical savings accounts are available to both uninsured workers and self-employed individuals, and provide both of these types of employees considerable tax breaks that would otherwise only be available to high level employees in corporations. Medical savings accounts allow any eligible individual to save money (without being taxed) that can be used for medical expenses, regardless of whether their current employee provides health insurance benefits. Individuals that are either currently suffering or are likely to contract chronic health problems could stand to benefit from medical savings accounts the most, as it could provide crucial financial assistance on an ongoing basis while allowing them to save for healthcare costs in a tax-free environment.

Common Misconceptions about Medical Savings Accounts
Although many people believe that medical savings accounts only provide tax benefits for wealthy individuals, the fact is that even self-employed small business owners that have not yet become successful can benefit from medical savings accounts. There is also a common misconception that healthy people may open medical savings accounts and limit the availability of these accounts to people who truly need them, as only 750,000 people are allowed to have a medical savings account at any given point in time. However, due to the high deductible, most people that open medical savings accounts do have some form of chronic illness or foresee the need to pay a lot of medical bills within the near future, and very few healthy individuals are actually taking up some of the available medical savings accounts. Fortunately, there is a possibility that medical savings accounts will become available to all American citizens within the near future.

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