Comparing Health Savings and Medical Savings Accounts
Both health savings accounts (HSAs) and medical savings accounts (MSAs) can help to minimize premiums while providing healthcare coverage. These plans are particularly suited for individuals who are relatively healthy and want to control how they get care. However, there are differences between an MSA and an HSA plan.
As healthcare costs rise, it’s critical to understand the options available for managing your expenses.
Primary Forms of HSA and MSA
There are three primary types of health saving and medical savings accounts.
Health savings accounts (HSAs) are available to individuals and families with a high-deductible health plan (HDHP). These plans can be paired with employer-provided or individual health plans.
Archer medical savings plans (MSA) plans were a predecessor to the current HSAs. Use of this plan is infrequent, but some individuals still have these accounts.
Medicare medical savings plans (MSA) have the same structure as the Archer MSA. This plan is designed to help pay expenses for an individual who is covered by Medicare. For most people choosing insurance coverage, the primary MSA available is a Medicare MSA.
Who Can Join These Plans?
The IRS defines who is eligible to use each type of account. You need to meet specific criteria to qualify for contributions, but as a general overview:
- You can’t contribute to an HSA after you go on Medicare.
- You can only use a Medicare MSA if you’re on a high-deductible Medicare Advantage Plan (Part C).
- Standard Archer MSAs have limited availability after 2007.
Additional restrictions may also apply. Talk to a certified public account (CPA) or an insurance provider who knows your situation before you decide on coverage or use any of these accounts.
Similarities of HSA and MSA Plans
The HSA and MSA programs described above can help to offset health-related expenses. The plans share several features.
Funds may grow in your account without generating taxable earnings each year. Also, in some cases, you may be able to pay for healthcare with tax-advantaged dollars. Assuming you meet all IRS requirements
Potential Tax-Free Withdrawals
Distributions may come out tax-free if you pay for qualified medical expenses. However, if you don’t use the funds for qualified medical expenses, you may have to pay income tax and additional taxes on the amount you withdraw.
If you’re eligible to contribute to an HSA or Archer MSA, your contributions might reduce your taxable income. Employer contributions don’t qualify for a deduction, but they are generally not treated as income. With Medicare MSAs, you don’t contribute—your health plan does it for you.
Accumulating and Spending Funds
The HSA and MSA plans may also give the holder the option to leave funds in the account to accumulate. Unlike Flexible Spending Accounts (FSAs), there’s no “use it or lose it” feature with an HSA or MSA. That means you can build up savings for later in life or use the money now. The older you get, the more likely you are to pay significant healthcare expenses—so it doesn’t hurt to have extra savings available. Some providers call this “rolling over” funds for the next year, but you really just leave the money alone.
With most accounts, you get a debit card or a checkbook to pay for qualified medical expenses. That allows you to pay providers or buy medical supplies independently. Just be sure to save receipts for any withdrawals.
HSAs are an option for those who have an individual or employer-provided health plan that has high deductible limits (HDHPs).
Premiums: HDHPs typically have lower monthly premiums than other options because of the high deductible. As a result, they attract cost-conscious employers and individuals (including self-employed buyers).
HDHPs: To qualify as an HDHP, plans must meet specific criteria, including but not limited to:
- The minimum deductible for 2018 and 2019: $1,350
- Maximum out-of-pocket expense: $6,650 for 2018 ($6,750 for 2019)
- Details vary by insurance provider and plan offerings.
Contribution limits: Eligible individuals can contribute based on the type of health coverage they have. HSAs are individual accounts (there’s no such thing as a joint or family HSA, even if you have family coverage).
- Maximum annual contribution for individual coverage: $3,450 for 2018 ($3,500 for 2019)
- Maximum annual contribution for family coverage: $6,900 for 2018 ($7,000 for 2019)
- Those over age 55 may be able to make an additional catch-up contribution of $1,000 for 2018 and 2019
Medicare Advantage MSAs Highlights
Medicare MSAs are an option for individuals on Medicare. After you enroll in Medicare, you can no longer contribute to an HSA.
Premiums: You may pay zero premiums if you use a high-deductible Medicare Advantage Plan. As a result, you typically face higher deductibles and up-front out-of-pocket expenses.
Contributions: Your healthcare plan deposits funds int your Medicare MSA (you can’t make contributions yourself). Those contributions typically arrive at the beginning of the year, but you may get pro-rated contributions if you join a plan later in the year.
The idea with a Medicare MSA is that you use the funds from your account to pay for qualified expenses until you reach your deductible. But not all “qualified” expenses are applied to your deductible, and your deductible is typically more than you receive in your account. As a result, you may need to come up with funds on your own to pay for a portion of your expenses.
Once you reach your deductible, the plan should pay all of your Medicare-covered Part A and Part B health care costs—but verify coverage details with your providers.
Archer MSAs Highlights
HSAs have largely replaced standard (non-Medicare) Archer MSAs, and HSAs are more flexible than Archer MSAs.
Availability: Archer MSAs were originally available to small businesses (50 or fewer employees) and self-employed individuals. After 2007, the ability to open new Archer MSAs is restricted, although it is possible to do so in some cases. HSAs are available to self-employed individuals, small businesses, large enterprises, and employees of other organizations.
Contributions: Archer MSAs also restrict who can contribute to an account. Either the account owner or the employer can contribute in a year, but not both. Plus, you need to be covered by an HDHP for the full year to be eligible. Finally, you can only contribute up to 75 percent of your HDHP annual deductible (65 percent for self-only plans).
This page provides a general overview of how MSAs compare to HSAs, but the IRS imposes additional restrictions not described here. Tax laws can change frequently and quickly, and the information here may be outdated or simply inaccurate by the time you read it. What’s more, complicated rules may cause the IRS or your insurance provider to handle your situation differently than described here. Always consult with a CPA or tax attorney before making decisions. Ask an insurance representative licensed in your area for details on health coverage before you choose a plan.