Make MSAs Permanent? Its On The 107th Congress’ Agenda
They say hindsight is 20-20 vision. But the savvy financial advisors who first promoted individual retirement accounts in the mid-1970s didnt need it. They sold IRAs, despite the rest of the worlds initial lack of understanding of the new retirement accounts.
Today, many experts equate that IRA story with another smart money management tool. Its a little-known tax-advantaged health insurance program called a Medical Savings Account. With standard health insurance premiums on the rise and congressional interest in improving MSAs, agents and brokers–along with business owners and consumers–are taking a closer look at the value of MSAs.
The original intent of MSAs was to keep health care costs down, improve access to medical care, and provide incentive for individuals and small groups to purchase health insurance.
Congress established a temporary pilot program in the mid-1990s and access to MSAs was restricted to employees of small companies with 50 or fewer workers and the self-employed.
Near the pilots expiration date and after its modest success, Congress renewed the program last December.
Unfortunately, although the heart of todays MSA has remained unchanged, limitations within the law have complicated it. The result? Many agents and brokers find MSAs difficult to explain and, coupled with the programs temporary nature, they have little incentive to do so.
This leaves consumers unaware of the programs existence and benefits.
The good news is that industry experts agree potential customers would most certainly be interested in purchasing more flexible and better-structured health insurance plans like MSAs. Discussions to do just that–and to make MSAs permanent–are set to take place early next year in the 107th Congress. (See chart on some of the proposed changes.)
Even as MSAs exist today, however, the products provide a cost-effective health care financing option, complete with tax advantages and long term savings rewards for participants.
How so? An MSA health plan consists of a savings account coupled with a high-deductible insurance policy. The insured person pays for routine, covered medical expenses through the account; the insurance policy covers more substantial costs.
The cost of the policy is significantly less than the cost of a traditional low-deductible policy, but it provides comparable protection from catastrophic illness, long hospital stays or an unusually unhealthy year in general. The money saved from buying this less expensive coverage is used to make contributions to the savings account. Any dollars left unspent at years end, including interest or investment earnings, carry over to the next years expenses.
It is this combination of lower premiums, tax advantages, and accumulated savings in the account that makes MSA plans more affordable than traditional health insurance.