Your Health, Your Money, Your Doctor ®

Return to Main Website

How Medical Savings Accounts Work for the Self-Employed Until now, the self-employed have always gotten what's left over after Congress had done for everyone else. Until now, the self-employed have always been discriminated against in the tax law. Now with MSAs (Medical Savings Accounts), that's all changed. For the self-employed, MSAs are the most radical health care reform since World War II. New Tax Law: Senator Kennedy fought against MSAs for Americans. He so hated the idea that he did everything possible to stop a tax break for MSAs. He held out for three months, preventing a vote in the Senate by threat of a filibuster. Finally, there was a compromise to let 750,000 of those presently insured (plus uninsured) enroll in what was described as a pilot program. MSAs would be allowed for the self-employed and for small firms of up to 50 employees. Those who get into the pilot program are guaranteed they can keep their MSA and continue the tax shelter for future moneys. Benefits for the Self-Employed: The important break is for the self-employed, who have previously been left behind in the tax treatment of health benefits. Many self employed find insurance too expensive, so they do without. And the self-employed have been severely penalized with unfavorable tax treatment. It's all changed! New for the Self-Employed: $$ into MSA = 100% tax deductible $$ into health premium = 70% tax deductible Limit: Senator Kennedy wanted no one to get a tax break for MSAs. The Compromise: MSAs for 750,000 who are presently insured. Plus all the uninsured who join now. The Door is Still Open: When 750,000 presently insured have enrolled for MSAs, the door will be closed for everyone. No one else will get the tax shelter, until Congress expands the number. Once the door is closed, everyone already in gets to keep their MSA and continue the tax shelter for future moneys. The Self-Employed Market: 12.8 million self-employed are eligible. 3.1 million self-employed are presently insured. 9.7 Million self-employed don't presently have health insurance. To get the tax exemption, the self-employed must carry a high-deductible policy that falls within the definitions prescribed in the new law. The traditional high-deductible policies commonly won't qualify. Under the law, the tax-exemption for savings account deposits is pro-rated by the month. To get the full exemption for the year, the self-employed person must have proper high-deductible coverage in force for all 12 months. Miss one month, you lose 1/12 of the year's tax exemption. Maximum Annual Tax-Exempt Savings Deposit in an MSA: Single*...........................................$1,625.00 tax exempt Family (individual plus one)*.......$3,712.50 tax exempt *Accompanied by qualifying high-deductible insurance for big medical bills. Who Qualifies? All self employed For the self-employed, the tax break is everything! Tax-exempt deposits to MSA Tax-exempt accumulation Tax-exempt interest Hooray! In 2002, the tax break is earned by the month. The self-employed person who joins July 1 gets only half of the available tax break.