MSAs May Get New Lease On "Life"

April 5, 2001 (PLANSPONSOR.COM) - Small business owners and entrepreneurs might have reason to be optimistic about the future of Medical Savings Accounts (MSA), thanks to new legislation that could make them permanent and expand their availability.

House Ways and Means Chairman William M. Thomas (R-Calif.) and Rep. William Lipinski (D-Ill.) announced the legislation on April 4.

MSAs are tax-exempt accounts in which people can save for medical expenses. Typically, holders purchase health insurance with a high deductible and then establish a MSA from which to pay this. Once the deductible has been paid, plans often pay up to 100% of medical costs.

In 1996, Congress enacted a four-year MSA pilot project. Late last year Congress extended the pilot project by two years. Due to the uncertain future of the program, employers have been slow to embrace the program, and providers reluctant to support the product.

The bill would expand the market for these accounts, by repealing the current 750,000 cap on the number of taxpayers who can hold them, a limit which has discouraged providers from offering them.

At present, eligibility is limited to employees of businesses with staff of between two and 50. The new legislation would allow individuals to purchase MSAs and companies of any size to offer them.

In addition, the bill would:

  • lower the minimum deductible for individual and plans that accompany MSAs to $1,000 and $2,000 respectively
  • allow both employer and employee contributions
  • allow these accounts to be offered as part of cafeteria-style benefits plans
  • aim to encourage preferred provider organizations to offer them.

Camilla Klein