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Federal law provided for the creation of MSAs as a pilot program from 2001 to 2002. HSAs evolved from this program, and essentially function in the same manner as MSAs with an added component that allows accumulated savings to be used as retirement income for any purpose after age 65. It is no longer possible to join an MSA, although participants in those pilot plans are able to maintain their accounts.

Participation in an HSA requires membership in a high deductible health plan (HDHP), with an annual deductible of $1,000 to $5,000 for an individual policy, or $2,000 to $10,000 for a family policy. An HSA participant makes regular deposits into his or her savings account through pre-tax payroll deductions, and in the case of an employer-sponsored HSA, the employer may contribute some amount as well. The accumulated funds of the account are then used to pay covered health care costs up to the annual deductible amount´s of the HSA participant´s health policy. Money remaining in the account that is not spent on health care rolls over to the next year.

The upshot is that participants aren´t taxed on the income they spend on health care. And, although they may ultimately spend more-out-of pocket toward health care costs than non-HSA members with lower deductible coverage, the premiums for high deductible policies are generally significantly less than those of lower deductible plans; the tax and premium generally result in lower overall health costs for HSA participants.

In order to qualify for an HSA, a participant must:

• Participate in a high deductible health plan
  
  
• Not have comprehensive health coverage through any other source (accident only, specified disease and disability income protection policies are allowed)
  
  
• Not be Medicare eligible
  
  
• Not be claimed as a dependent on another individual´s income tax return
  
  

The Texas Department of Insurance maintains a list of carriers providing high deductible health plans that satisfy the conditions of MSA and HSA participation on the agency´s websites

HSAs are portable, meaning participants in employer-sponsored accounts may continue to maintain the account after leaving the company for any reason (although they can no longer expect to receive any contribution to the account from the former employer). Money in the account may further be transferred to the HSA program of any employer.

HSA participants may withdraw the accumulated earnings at any time, however, withdrawals that are not allocated toward health costs are subject to income tax at the account holders normal tax rate. Account holders under age 65 are further subjected to a 10 percent penalty on all non-health related withdrawals. Account holders over age 65 are not subject to any withdrawal penalties, however, and may also transfer any amount from the account into an IRA, which is a tax-sheltered retirement savings vehicle.

In the four years since the implementation of the MSAs and HSAs research has shown that overall participants pay less in total health care and health coverage costs than people covered under traditional health care plans. However, in certain instances participation in an HSA can be a financial mistake. Individuals who withdraw money from their HSAs face the 10 percent penalty. For this reason, it is important for participants to carefully gauge the amount of deposits into the account. They should make every attempt not to deposit more than is needed to pay their annual health costs.

MSAs and HSAs were implemented in order to provide Americans with an option for lower cost health coverage and also attempt to lower the overall cost of services across the health care system. In theory, individuals who spend more of their earnings toward actual health services have a greater incentive to price shop for health services than individuals covered by lower deductible plans. The reasoning is that consumers who primarily rely on their coverage to pay health costs essentially pay the same for receiving treatment from an expensive health provided or an inexpensive one. Whereas, those paying with their personal accounts will actually save from using lower cost services, promoting competition among providers to keep rates low to compete in the market.

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