MSA plans end this year

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Medical savings accounts end in 2003

by Tony Novak, CPA, MBA, MT
, revised 11/25/2003 and 11/30/2011

Medical Savings Accounts (MSAs) expire December 31, 2003 and the IRS is not expected to extend the program. While existing MSAs may continue, it is unlikely than new plans will be available. MSAs will be replaced with a more liberal Health Savings Account (HSA) that offers expanded tax benefits and is available to more people. Most of the 70,000 current MSA plan enrollees are expected to elect more attractive insurance and savings features of the new HSA plans.

MSAs offer significant tax savings and reduction in health care costs, but have been available only to small businesses. The primary problem with the MSA plan program is that the IRS eligibility requirements specify that a certain type of health insurance must be in place in order to take the tax benefits. That specific insurance is unavailable to many people. The new HSAs, in contrast, do not require any health insurance. In addition, the HSAs allow a higher tax-deductible contribution and allow some of the unused benefits to be rolled over into a tax-qualified retirement plan.

Almost everyone will be eligible for the new HSA. Eligibility includes 1) those who are covered by a health insurance plan with an annual deductible of $1000 or more; or 2) those with no health insurance. The only people not eligible are those covered with low-deductible health plans. Low-deductible health insurance is becoming increasingly rare in most states and this new law will likely hasten its extinction.

Current MSA owners will probably be able to elect to have their accounts automatically updated to the new HSA without any interruption in plan coverage. Specific procedures are not available at this time.

HSAs are included as part of the recent Medicare reform bill that passed the U.S. Senate and House of Representatives around Memorial Day. This legislation must pass through several more steps before becoming law, and that process is never guaranteed. The IRS has not issued detailed procedures so many details are unavailable at this time. More information is available at

In summary, the termination of the current MSA program is not anticipated to have any negative effect on current MSA owners due to the availability of an expanded health benefit program. Next year a much larger number of people will be able to enjoy the same tax benefits.

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