While Health Savings Accounts (HSAs) are similar in many ways to old-fashioned Medical Savings Accounts (MSAs), the new accounts are also much better. Here's why:
• Smaller insurance deductible allowed. You can qualify for an HSA with an insurance policy carrying a much lower deductible than what's needed to qualify for an MSA (as low as $1,000 for single coverage with an HSA versus no lower than $1,700 for an MSA, and as low as $2,000 for family coverage with an HSA versus $3,450 for an MSA).
HSAs carry higher annual out-of-pocket maximums (as high as $5,000 for single coverage versus no more than $3,450 for an MSA; as high as $10,000 for family coverage versus $6,300 for an MSA).
Bottom line: It's much easier to find policies that meet the HSA guidelines than those that meet the MSA requirements. Many large insurance companies offer policies passing muster under the HSA rules.
• Bigger contributions allowed. With an HSA, you can contribute up to 100 percent of the insurance policy deductible amount (limited to $2,600 for single coverage and $5,150 for family coverage). In contrast, MSA contributions limit the deductible for single coverage to only 65 percent or 75 percent for family coverage.
• Larger contributions for older people. HSAs permit larger contributions for those age 55 and older (see box, page 4). MSAs don't offer that advantage.
• HSAs are permanent. MSAs existed only as a "pilot project," with periodical renewal by Congress. In contrast, HSAs are permanently installed in the tax law.
• All size businesses can jump in. Employer-sponsored HSAs are available to both large and small employers alike. In contrast, MSAs are only allowed for small employers (generally those with 50 or fewer workers).