Once the plan deductible is met in a given year, the HDHP will pay any remaining covered medical overinsurance investopedia forex in that year. If there are funds remaining in the MSA at the end of the year, the funds can either roll over for the following year or can be withdrawn as taxable income. Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The idea of the MSA appears to have come from health care analysts that were concerned about the problem of overinsurance.
They reasoned that overinsurance was raising the cost of health care expenses. During the early 1990s, think tanks such as the National Center for Policy Analysis and insurance companies such Golden Rule Insurance Company began to promote passage of a law that would allow for tax-free contributions to a medical savings account. The ‘Archer MSA’ term refers to the sponsor of the HIPAA amendment creating the accounts in 1996, Congressman Bill Archer of Texas. The Archer MSA is intended to be used by self-employed individuals and small businesses with fewer than 50 employees.
The plan is entirely self-directed, including its initial setup and compliance with the plan thresholds. The plan enables a participant dual to fund a tax-exempt account for medical expenses incurred before an associated ‘high deductible’ insurance plan begins to cover those expenses. The individual pairs the MSA with a ‘catastrophic insurance’ plan, which has lower premiums than plans with lower deductibles. Any money added to the account can roll over to another year if unused. MSAs are investment accounts, they can accumulate over the deductible level, can be used for qualified investments, and grow tax free. The MSA account may be convertible into a standard IRA savings plan after a specified age threshold is reached. Among the medical expenses that can be paid out of an MSA account are premiums for long-term care coverage, health care coverage paid while receiving unemployment benefits, or any form of health care continuation coverage required under any federal law.
The risk is that an MSA account holder may find that their medical expenses outstrip the contributions they can afford to make. The MSA is generally a defined trust account that is set up solely as an IRS-related, tax-exempt financial instrument for medical expense purposes. However, after a contributor attains a certain age, current IRS provisions allow this account to be maintained as a standard IRA retirement account. There are very specific qualifications to be met before making any contributions and in part those are performed using a worksheet in the IRS Form 8853 instructions. Qualified medical expenses are essentially those that would qualify for the medical and dental expenses deduction. These are discussed in IRS Publication 502.
In 2003, the health savings account was created. Since HSAs are a more widely available version of the MSA the original program is by and large obsolete. The exception to this is the state of California where MSA contributions are deductible on a state level and HSA contributions are not. Since the Archer MSA is a pilot program, it must be extended periodically by the US Treasury Department. The present extension of the program ended December 31, 2007.