New rules allow citizens and small businesses to open medical savings accounts, a boon for those with high deductibles.
The one good thing to come of the Clinton administration's failed attempt to nationalize health insurance is the federal Health Insurance Portability and Accountability Act. Among other things, the act allows self-employed individuals and those working in small companies to set up special tax-free medical savings accounts (MSA) to pay the first $2,000 or so of medical expenses and have any added costs covered by low-cost major medical insurance.
Launched in 1997 as a four-year plot program, MSA enrollment is currently limited by the federal government, which places a variable, annual cap on how many policies may be sold (600,000 in 1998, for example) on a first-come, first-served basis. The government has also set the minimum and maximum annual deductibles for MSA policies at $1,500 and $2,250 for individuals, and $3,000 and $4,500 for families. Annual contributions to MSA accounts are restricted as well, to 65% of the annual deductible for individuals and 75% of the annual deductible for families.
What this all amounts to is, in effect, comprehensive medical insurance with a high, self-insured deductible. You cover the expensive-to-insure "first dollar" of medical expenses with tax-free saved income. Unspent savings are rolled over annually, earning tax-deferred interest (the going rate is 4% to 5%) until age 65. Medical costs over and above your annual deductible are covered by insurance.
This is a little-publicized, rare good deal from Uncle Sam, and — especially if your family has no medical insurance — it may even be worth borrowing to fund the medical savings account. If you work for a small company, ask your employer to consider offering an MSA plan.
If you are self-employed, or simply want to learn more about MSAs, call your local "Blues" medical insurance companies, savings bank, or a general insurance agent. Information is also available from MSA administrators. A couple to try are FlexHSA and Medical Savings of America.