The Medical Savings Account Program Model For Employers
I. Medical Savings Account (MSA)

MSA enrollees need to understand that all dollars in their Medical Savings Accounts are their own—not the employer's, not the government's, and not some insurance company's. This understanding motivates behavior changes in consumers reducing utilization of health services and decreasing spending.

An appropriate actuarial analysis is needed before installing an MSA plan. This analysis allows the employer to allocate funds into the two risk components - the MSA and the high deductible insurance. Failure to adequately assess the insurance risk of the insured employee population could cause the high deductible medical insurance to be inadequately funded. In addition, these health financing decisions involve numerous personal, economic and organizational values.

MSA plans set risk financing at two distinct levels—the MSA at the lower level and the high deductible insurance at the higher level. The structure of risk financing is crucial. The MSA is individual self-insurance at the lower level.

"MSA enrollees need to understand that all dollars in their Medical Savings Accounts are their own—not the employer's, not the government's, and not some insurance company's."

Annual deposits of MSA dollars are reserved for paying health expenses up to the predetermined insurance deductible. Employees with MSAs are able to directly pay for all expenses up to the deductible. Beyond this first level, an insurer or re-insurer assumes all further risk. .

The employer may purchase the high deductible insurance from third party carriers. This covers eligible spending beyond the annual MSA deposit. Or the employer may also self-insure for a part of the potential loss over the deductible, say for expenses more than the $3,000 in the MSA up to $10,000. Re-insurance from a third party covers losses beyond the upper limit of the employer's self-insurance— $10,000 in this example.

The difference between the premium charged for the traditional indemnity plan and the cost of the excess insurance may save enough money to fund the MSA. Money for the MSA may come from one or all of he following:

1. Employer and employee traditional indemnity premium contribution
2. Employer and employee shared contribution
3. Employee potential out-of-pocket maximum liability.

Total contributions to the MSA may be set at different levels consistent with the desired deductible. Employer contributions and payroll contributions are typically made monthly to the individual Medical Savings Accounts. Individual or single enrollee plan deductibles are usually in the $1,000 to $3000 range. Family deductibles may be in the $2000 to $4000 range. When employees incur medical

1. To pay all covered and IRS approved health expenses.
2. At termination of employment.
3. As an end-of-year distribution. Possible uses include leaving part or all of the money in the MSA; withdrawing as income; placing in an interest-bearing health expense reserve account; contributing to a retirement plan such as an underfunded 401K plan or IRA/annuity; or participating in a tax preferred money sharing plan.

   Employers and employees must be aware of federal and state tax consequences of establishing and maintaining Medical Savings Accounts. The Morris County Hospital Employee Welfare Plan already described was approved by the Internal Revenue Service as a tax preferred element within an employee benefit plan.

   MSA contributions are subject to applicable federal and state tax law. For federal tax purposes, premium contributions by employers, including employee payroll deductions are currently deductible from the employer's income. MSA contributions are usually included in taxable income to the employee.

   "Employees may withdraw MSA funds from their accounts:

   1. To pay all covered and IRS approved health expenses.
   2. At termination of employment.
   3. As an end-of-year distribution."
   Previous  |   Table of Contents  |   Next

   
   

   Send this Page to a Friend
   

   Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org