If you’re a freelance worker, an independent contractor or an hourly employee, here are ideas designed to help you save.
What is a medical savings account?
Similar to an individual retirement account (IRA), a medical savings account (MSA) is intended to help self-employed people and employees of certain small businesses to save for and pay for their medical expenses that are not covered by health insurance.
A medical savings account is a Medicare private health plan that has a high deductible. It comes in two and can be purchased in two parts:
- High-deductible plan: This part is a special kind of high-deductible form of Medicare Advantage Plan (Part C). The plan will kick in only after you meet a high yearly deductible, which varies by plan.
- Medical savings account: This is a special kind of savings account. Your Medicare MSA plan puts money directly into your account. Then, you can use the money from this account to pay for health care expenses before meeting your deductible.
MSA may offer additional benefits for costs beyond regular health care needs, including:
- Long-term care not covered by Medicare.
MSA plans don’t cover Part D prescription drugs and require enrollment in a Medicare prescription drug plan for coverage.
Though MSAs are associated with very high deductibles for the individual and family, there are some preventative services that are covered and do not contribute to the deductible. These include:
- Annual physicals.
- Well-baby examinations.
Contributions to an MSA are counted on a pretax basis, which can offer considerable tax incentives on a year-to-year basis.
Additionally, unused money from an MSA can be rolled over from one year to the next, avoiding the “use it or lose it” philosophy of some private savings options, notably flexible spending accounts.
Medical savings account example
If you are a relatively healthy individual, with a high-paying job that doesn’t provide adequate medical insurance, an MSA might be a good plan. This plan would allow you to contribute money toward your MSA without incurring tax penalties, which offers a significant tax break if you must file within the top tier for yearly income.
Curious about your options for a health savings account? Learn more about your choices.