A Medical Savings Account (also called a Medical IRA or Medisave Account) is a tax-deferred savings plan, like an IRA,  that allows one to set aside a certain amount of money to pay for medical expenses up to a certain level. (This can be done either by an individual for him or herself and family, or by an employer for employees.) In addition to the fund, one can also buy an insurance policy with a deductible that is about the same as the amount of money set aside in the  MSA (usually a few thousand dollars). Because the deductible is high, one can purchase a low co-pay, high UCR percentile policy that will afford good coverage at a reasonable cost.  The money in the MSA is then used to pay for most of the medical expenses until the deductible is met, at which point the indemnity insurance kicks in.  

What are the benefits of MSAs?

Because these accounts are personal and transferable, and can be combined with non-restrictive indemnity insurance, there are no outside managers controlling your medical care or telling you how to spend your money.

Because they eliminate the filing of the majority of insurance claims (you simply pay most of your bills directly from the account), there are no insurance hassles, AND the full value of each dollar spent from an MSA goes to your medical care rather than to finance an insurance company's bottom line. In fact, if every American had an MSA plus an insurance policy with a deductible of $2,000 per individual and $4,000 per family, claims to insurance companies would be reduced by 90%.  For many small health claims,  eg, for pharmaceutical and outpatient visits, the cost  of administration by the insurance company is greater than the cost of the claim itself.  This drastic reduction in administrative costs would translate into a major reduction in insurance company overhead, and therefore reduce policy costs even further.

Because they enable you to buy indemnity insurance with a high deductible, you can purchase a good policy relatively cheaply. In fact, the cost of funding an MSA AND a high-deductible indemnity policy is usually in the same range as that of an out-of-network HMO policy, without any of the restrictions, and, in many cases, MSAs can offer more extensive, intrusion-free medical coverage than out-of-network managed care plans at a lower cost.

Also, the IRS has also recently expanded the list of medical charges deductible under an MSA to include expenses which are not normally part of a medical insurance program.

An additional benefit is that if the money in an MSA is not spent on medical care in any given year, it accumulates interest free of taxes (like an IRA) and can serve as an additional retirement fund.  

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