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     The MSA Advantage

What if you could deposit the premium savings in a completely TAX-DEDUCTIBLE account and pay your routine medical and dental bills from this account with tax-free dollars?  And if your family's medical bills ever hit the deductible in any given calendar year, a comprehensive, choose-your-own-doctor policy kicks in to protect you? Imagine several years going by and your account continues to GROW.  Every year you can put any amount in the tax-deductible account you wish to, including nothing, up to a maximum of 75% of your yearly deductible -- which can translate to $3,375 yearly deposit.  You can keep doing this every year regardless of how much you spend from the account for qualified medical and dental expenses.

Finally, Congress did something good for the self-employed! You now qualify for a special type of health INSURANCE that combines a lower cost high deductible policy with a tax deductible Medical Savings Account.

According to the Employee Benefits Institute, only three million of the nation's  12.6 million self-employed have health insurance, and about a quarter of the 25 million  people who work at small companies are UNINSURED. Another 10 million Americans are paying ridiculous amounts of money for PRIVATE health insurance -- out of their own pockets. Overall, the percentage of people who have health insurance is on a slow but steady decline because of the rising cost of coverage. Average premiums more than doubled since 1988 and, at the start of this year, many businesses and individuals had to deal with 5 to 20 percent premium increases. 

The good news is that medical savings accounts are making a difference: One in five new medical savings accounts have gone to people who were previously uninsured and roughly 70 percent of the new accounts have gone to self-employed individuals. Figures vary on how many medical savings accounts have been sold to but, once the ceiling of 750,000 participants is reached, brokers will STOP selling the policies.

Every year you can choose to contribute tax-free dollars into your Medical Savings Account. You first must acquire a qualifying high DEDUCTIBLE policy from a health insurance company. You can then open your tax deductible medical savings account with one of many different financial institutions. Your family's EXPENSES for doctor visits, prescriptions, wellness exams, dental visits, glasses, your deductible and a host of other items can be paid for with tax free dollars from your medical savings account. The money that you don't use stays in your account and continues to grow tax DEFERRED, along with any additional yearly contributions you choose to make. So the money you don't spend on health care can  be used to supplement your retirement!  

Combining a high-deductible health insurance policy with tax-deferred, interest-bearing savings accounts, medical savings accounts offer individuals and employers a double bonus when it comes to savings -- unprecedented tax WRITE-OFF advantages and the potential for building up a long-term, tax-deferred RETIREMENT fund. Let's look at how medical savings accounts can help you. Nancy Huebner, a small business owner and medical savings account policyholder, more than tripled her tax savings on health insurance last year; pocketing $500. When medical savings accounts became available at the start of 1997, Huebner, a certified public accountant and founder of Elgin, Ill.-based Business Matters, realized she could write off 100 percent of the investment and potentially save money for the future. 

Millions of entrepreneurs like Huebner are CURRENTLY carrying high-deductible plans and may not even know there is a tax advantage right around the corner. Let's take a look at Huebner's long-term gains. Over 30 years, she can expect to save $20,000 in taxes for her medical savings account contributions and premium deductions. Family policies -- which allow higher annual medical savings account contributions -- yield even greater RETURNS with more than $1,200 in tax savings for 1997 and a potential $38,700 over 30 years.

This is a powerful way to address health insurance.  But it is only available to the SELF-EMPLOYED. You are the perfect candidate for an medical savings account if:  
  • You are mostly concerned with CATASTROPHIC medical expenses.

  • Having low co-pay doctor office visits is really not that important to you. You feel you can easily PAY "the little things" out of pocket.

  • Your business is doing well and you have some extra LIQUIDITY.
Not everyone is the perfect candidate for medical savings accounts. If you have young CHILDREN, for example, perhaps co-pay benefits would be important to you.  Tom Russell & Associates will help you determine the best possible plan for your specific situation.

With a medical savings account you have complete control of your funds.  You decide how much and when to make DEPOSITS to and WITHDRAWALS from your medical savings account. You can then use the federal tax-advantaged medical savings account funds, including tax-free interest earned, to pay qualified expenses for medical services. Qualified expenses include your medical savings account deductible and coinsurance, and other health-related EXPENSES not covered by the policy, such as dental care, vision care and long term care insurance premiums. 

You remain in control of your medical expenditures by keeping track of the qualified expenses you pay, so you'll know when to file claims with your medical savings account policy. By using medical savings account funds to pay at the time of service, you'll be eligible for cash payment DISCOUNTS offered by some health care professionals who prefer not to have to file claims with insurance companies.

At the end of each year, your medical savings account BALANCE is yours to keep. And as long as the funds remain in the account, they are not subject to federal tax and continue to earn tax-deferred interest. (Also check your state laws because more and more states are allowing tax-advantages for medical savings accounts as well.) Funds withdrawn for NONQUALIFIED expenses are subject to a 15% penalty tax in addition to income tax. 

Once you reach age 65, the funds can continue to be WITHDRAWN tax-free to pay qualified medical expenses including long-term care insurance premiums. At age 65, funds can also be withdrawn without the 15% penalty to supplement retirement income. However, such withdrawals are subject to federal income tax. These features make a medical savings account an attractive way to help save for your RETIREMENT.


Tom Russell entered the insurance industry in 1983. His agency specializes in all forms of Health Insurance for families, seniors, the self-employed and small groups. Tom is also a professional speaker and is often invited to address Arizona businesses, churches and conventions. You may contact him at or visit his website at www.paysonhealthplans.com.

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