MSA'S and HSA'S: SAME THING AND NOT JUST FOR SELF - EMPLOYED

MSAs (Medical Savings Accounts) were originally developed over 25 years ago with the self-employed in mind. These are a tax-saving, tax-exempt medical expense-paying, tax-deferred interest-bearing form of IRA. This is great and you know exactly what that means if you are self-employed. If you don't or you're not, read on. Several years after their development, MSAs were renamed HSAs and anyone with taxable income can have one. 

What appealed to many people, self-employed or not, was the concept of a family deductible, as opposed to a per person deductible, and this is inherent in what are now known as HSA-compliant plans - Health Savings Accounts. Ultimately, most decided they would make the MSA plan format available to anyone who wanted it, providing they could get through medical underwriting - same as any other health plan. (HSAs are not, in themselves, products; they are concepts, and one had to undergo the same medical history underwriting for an HSA-compatible health insurance plan as for any other type of insurance plan). As of 2014, there is no medical underwriting and no one can be declined health coverage based on medical history. Going into 2021, most carriers offering major medical coverage through the Marketplace, which we work with almost daily, offered one HAS-compatible health plan. One could have an HAS-compatible plan without being required to set up an actual health savings account. That has always been optional; some people just like the lower premiums. 

The idea of putting money aside in a savings account and ear-marking it specifically for medical expenses isn't new, but until the last few years, few people did it. Everyone liked the idea of having money available for the out-of-pocket expenses, but no one seemed to want to be the one who made the money available in the first place! Anyone can put money into a savings account but it cannot be called a health savings account, and receive the tax benefits, unless the health insurance plan they have specifically indicates in its name that it is HSA-compatible. Just because a plan might be a high deductible plan does not make it an HSA-compatible plan. 

A L Williams coined the phrase, "Buy term, invest the difference" and the concept was 100% "on-the-money" – but only 10% of those who supposedly agreed with the concept actually followed it. If you have a $1500 deductible, or a $3000 deductible, and you put that amount of money aside in a savings, letting it earn interest, then use it only for medical expenses, the chances of having some or most of that money still in that account at the end of the year are statistically better than 95%. You can only deposit a specific amount into an HSA account every year; see previous article on HSA contributions. 

Numerous financial institutions will set up your HSA-savings account and pay interest on the money deposited into the account. Most health insurance plans offer 80/20, 90/10 or 100% coinsurance after the deductible has been met, meaning most out of pocket expenses are fully covered at that point. For everyone. And a family deductible of $10,000 with a 100% coinsurance is more significantly more attractive and less expensive than a per person deductible of $5,000 with an 80/20 coinsurance!

Whether self-employed or not, the money deposited into the savings account is both federal and state tax-exempt and the money withdrawn for medical purposes is likewise tax-exempt; the interest is tax-deferred. That is the benefit of these types of plans. The other benefit: often a lower premium.

It is always advantageous to look at a non-co-pay plan, which usually offers a lower premium than a plan offering co-pays. (Read our article, "Upset with High Premiums?" to better understand why non-co-pay plans are almost always better than plans which offer co-pays.) 

The less you ask the carrier to pay of the "small stuff," the lower your premium will be. If you asked your car insurance plan to pay for tune-ups, flat tires and oil changes, chances are you wouldn't be able to afford the premium! Likewise, the more you ask your health insurance plan to pay of the "little things" the more they will charge for the privilege. The person who says, "I hardly ever go to the doctor" is wasting a lot of money on a co-pay plan – usually to the tune of more than $100 or more per month in higher premium!

Getting back to the potential savings in premium and out-of-pocket expenses of a plan with a family deductible and no 80/20 co-insurance...

Example:

Standard health plan, two adults, late-20's, non-smokers, with two children; standard $3000 deductible and $30-60 co-pays for doctors, etc:

<>
Using worst case scenario:

Premium: $ 870 to $1070 per month (avg = $970) x 12 months =      $11,640
$2000 deductible x two (usual family maximum) =                                $  4,000

80/20 of $2,000 x 2 (worst case scenario) =                                          $  4,000

Seven dr appointments, two lab tests, an x-ray, four prescriptions = $     720

Total out-of-pocket, including premiums =                                              $20,360

HSA, $4000 family deductible, same family size

Premium: $820 (average) x 12 =                                                             $  9,840

Deductible                                                                                                  $  4,000

Total out-of-pocket, including premiums =                                            $13,840

Savings, in a worst case scenario =                                                       $  6,220

So.... you decide: co-pay plan charging you for services you might not use, or a plan whereby you pay a minimum premium and take responsibility for those things that are necessary expenses, and ultimately cost you less over the course of a year? How many times in the last five years has any one family member met a deductible? Less than one in 20 people will meet a deductible in any given calendar year and less than 50% of those meeting a deductible will hit their plan's out of pocket maximum. Think about it.

How much do you want to pay for coverage? How much are you willing to be responsible for the "little stuff"? Insurance is meant to protect you against the unexpected.... you should budget for the little stuff and insure for the big stuff. As of 2014 and going forward, everything - deductible, any coinsurance, co-pays and prescriptions - counts toward the out of pocket maximum (doctor visit costs and prescriptions always did on HSA plans, but never did on co-pay plans).  You will save more money in the long run, even in a worst-case scenario - in fact, especially in a worst case scenario! See article titled "All About the Numbers."