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What is a medical savings account?

A medical savings account, or MSA, is the forerunner of a health savings account, or HSA. MSAs were phased out in 2003 when HSAs were established as part of the Medicare Prescription Drug Improvement and Modernization Act. Both accounts have similar tax treatments and deductibles and may be used as retirement accounts. People covered by Medicare can still use medical savings accounts.

Medical savings accounts were created to help people pay the high cost of health care expenses. They were tax-deductible and could be used for qualified expenses without taxes or penalties. MSAs were funded by either the individual or employer, but not both.


Learn more about medical savings accounts

When do I need to be aware of medical savings accounts?

If you are enrolled in Medicare, you can join a high-deductible Medicare MSA Plan. The plan deposits money in your account that you can use to pay for health care costs before you meet the deductible.

What is important to know about medical savings accounts?

For the most part, medical savings accounts have been phased out and replaced by health savings accounts, except in the case of Medicare MSA Plans. Health savings accounts, like medical savings accounts, are paired with a high-deductible health plan. Unlike MSAs, any eligible person with a high-deductible health plan can own a health savings account, regardless of whether they are unemployed, self-employed, or a large or small company employs them. There are some other important items you should know about medical savings accounts:

  • Several states created medical savings accounts in the 1990s, and they became a pilot program within the Health Insurance Portability and Accountability Act.
  • In 2003, the Medicare Prescription Drug Improvement and Modernization Act authorized the creation of the health savings account, the MSA's successor funded by both the employer and employee.
  • The Archer MSA, designed specifically for self-employed individuals and small businesses, was phased out in 2007, but some accounts still exist.