Medical Savings Accounts

General Discussion

If Your Goals Are -

• A choice of doctors,

• Flexibility and choice of health care provider

Then the Medical Savings Account (MSA) might be the strategy for you.

A Medical Savings Account is a combination of a high deductible major medical plan with a tax-free savings account.

Meeting The Qualifications

You must be -

• The insurance policy MUST meet certain qualifications - high deductible.  We will assist you with obtaining the correct policy.

• self-employed, OR

• work for a business with less than 50 employees, OR

• are uninsured

Compared to a typical "Cafeteria Plan" (the 'use it or lose it' plan) -

• You own the plan, not the employer

• The annual contributions are "rolled-over" to the next year - in other words, you do not lose the contributions

Other benefits of the MSA -

• MSA funds can be used for medical costs ranging from vitamins to hospitalization, with neither tax nor penalty

Fear of the MSA Balance Not Covering The Deductible

Some policies offer a rider to cover the policyholder up to the deductible.  Why is this important?  Because --- you may not have an amount built up in your MSA to cover the cost of the deductible and the rider is a 'safety harness' for the 'gap'.

Not All Physicians Are In The HMO or PPO Programs

Some physicians refuse to work for an HMO and some are not accepting the PPO.  Therefore the MSA is a tool to

• help you reduce your insurance costs,

• Obtain tax benefits

• Allow you to choose the physicians outside the HMO or PPO programs

Tax Deductions - For Those Who Cannot Or Do Not Itemize

One may make deductible contributions to a Medical Savings Account (MSA).  If you are an employee of a small business (fewer than 50 employees), or are self- employed and are covered only by a high deductible or catastrophic health plan, you may be eligible to participate.

Money deposited in an MSA is for medical bills and cannot be used to pay insurance premiums

If you need to pay for a doctor's visit, you can even write a personal check and then reimburse yourself from the MSA.  One is reimbursed from the contributed balance to the MSA (which was tax deductible, and the earnings were not taxed) and the reimbursement for the qualified medical expense is not included in income.

Some Technical "Stuff"

The points made in this section are not fully comprehensive and therefore you should call Bob Parrish CPA for a quote and assistance with your health policy.  However - here are the highlights.

The government has established the following minimum and maximum annual deductible limits  (future limits will be adjusted annually based on changes in the Consumer Price Index).

The amounts are subject to annual cost-of-living adjustments beginning in years after 1998. Code Section 220(g). For tax years beginning in 2002 and 2003, the figures are (see Rev Proc 2002-70 and 2001-2):

• Deposits to the MSA may come from the individual or the employer, but not from both in the same year. Congress has limited the amount that can be deposited annually into the MSA, which is separate from the premiums paid for the medical coverage, to 65 percent of the deductible amount for individuals and 75 percent of the deductible for families.
• Contributions made by individuals are tax-deductible. Employer contributions come off of the company's gross income and are not taxed. Unused MSA funds roll annually and continue to accrue interest tax-free, much like a savings account. Some fund administrators allow MSA holders to invest in money market accounts, mutual funds or stocks.
• Withdrawals from MSAs are made with checks or credit cards issued to the account. Withdrawals made for qualified medical expenses are free from federal income taxes. Funds may also be used tax-free for other health-related expenses, including dental and eye care, but these expenses may not be counted toward the annual insurance deductible.

Withdrawals for non-medical expenses are subject to a 15 percent tax penalty and are taxable as gross income. After age 65, MSA funds can be withdrawn for any purpose without penalty.

I shall always strive to accomplish your goals, and to keep your planning in balance.  You will find no other adviser or groups of advisers that has your potential and your security more in focus than I. 

Call Me

Simply to Help —Helping You To Keep More Of What You Earn, and Helping You To Protect What You Keep

 - Help To Keep Your Life In Balance

Very truly yours,

by

       Bob Parrish CPA Engagement Manager