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MSA Cost Comparison
The following example is based upon identical families with identical income and Identical health plans. The only difference is one family has a traditional major medical plan, and the other family has a MSA Qualified health plan. In fact, the same insurance company is being used for both the MSA and non-MSA qualified plan. The total savings for the MSA family comes to $2,865.65!
The $2,865.65 total savings is a combination of a reduction in the medical insurance premium along with the tax savings for utilizing the medical savings account. How we arrived at this $2,865.65 figure is as follows:
It’s March of 2001 and two families are identical with one notable exception. One family has a Traditional Major Medical Health Insurance Plan, and the other has a MSA along with a MSA Qualified Major Medical Health Care Plan that they purchased January 1st, 2000.
Our family is made up of a 39 year old male, and a 37 year old female. Both adults are non-smokers. There are four children in the family, ranging in age from 9 months to 10 years old. The family resides in the suburbs of Chicago. All members of the family are in good health.
| Amount of Money spent for Qualified Medical Expenses in 2000. This amount does not include premiums for insurance. This amount DOES include costs for dental, vision, and orthodontia and any other Qualified Medical Expenses. No health benefits were paid out by the insurance company since the costs were scattered amongst family members and no one person met their individual deductible. | $2,500.00 |
| Annual Income | $140,000.00 |
The tax rates for various levels of income are as follows. Our family's income and tax level is highlighted.
| Income | Federal Tax | State Tax | Total Tax |
|---|---|---|---|
| $0-$43,850.00 | 15% | 3% | 18% |
| $43,850.00-$105,950.00 | 28% | 3% | 31% |
| $105,950.00-$161,45.00 | 31% | 3% | 34% |
| $161,450.00-$288,350.00 | 36% | 3% | 39% |
| Over $288,350.00 | 39.6% | 3% | 42.6% |
| Standard Deduction. ( I have used the standard deduction instead of itemizing since we are assuming everything is equal.) | $7,350.00 |
| Percentage of health insurance premium that Self Employed Individuals can deduct in 2000. (You can STILL take this deduction even if you have an MSA qualified plan.) | 60% |
| Individual Exemption: ($2,800.00 X 6 ) | $16,800.00 |
The Health Plans that cover the two families are written by the same insurance company and are identical in every way except for the Out-of-Pocket Costs and Premium. The deductible and coinsurance differences are as follows:
| Out-of-Pocket Expenses | Non-MSA Plan | MSA Plan |
| Individual Deductible | $500.00 | $4,650.00 |
| Individual Coinsurance | $1,000.00 | -0-* |
| Individual Out-of-Pocket | $1,500.00 | $4,650.00 |
| Family Deductible | $1,500.00 | $4,650.00 |
| Family Coinsurance | $3,000.00 | -0-* |
| Family Out-of-Pocket | $4,500.00 | $4,650.00 |
| *The insurance company in my example waives the coinsurance provision on the MSA plan when you use a hospital that is a Preferred Provider Organization, (PPO). This insurance company has the largest PPO network in the area and you would be hard pressed to find a hospital that is NOT part of their PPO network. |
For more details on the unique deductible and coinsurance structure of this MSA plan, please see the MSA Qualified Health Plan.
Aside from the deductible and coinsurance structure, everything else is equal. The policy limit, coverages, conditions, everything!
The only other major difference is the annual premium, WHICH IS $2,111.00 LESS WITH THE HIGHER DEDUCTIBLE, MSA HEALTH PLAN.
The health plan being quoted in this example meets my criteria regarding the strength of the contract. This plan allows you to see a Doctor of your choosing and you will not be "surprised" by any contract provisions that can result in your actual out-of-pocket costs to be much higher than anticipated. The contract used in this example is the same I use in the right way to set up an MSA. See Contract Provisions for more details concerning "holes" in some insurance contracts.
The deductible and coinsurance requirement is waived with respect to Emergency Room visits. Charges are covered at 100%.
| Annual Premium for Non-MSA Health Plan | $5,460.00 |
| Annual Premium for MSA Health Plan | $3,350.00 |
| Annual Savings | $2,111.00 |
In computing the taxes, all variables are the same except for the following:
| Total Federal Tax Savings | $689.00 |
| Total State Tax Savings | $66.65 |
| Total Combined Tax Savings | $755.65 |
As you can see, the tax and premium savings are significant. However, the way to get the "true" savings is by adding up all the year 2000 insurance premiums, medical expenses and tax savings for both families:
| Expenses | Non-MSA Family | MSA Family |
| Annual Insurance Premium | $5,460.00 | $3,350.00 |
| Qualified Medical Expenses paid by the family. | $2,500.00 | ***** |
| Contribution to MSA | -0- | $3,487.50 |
| Tax Savings | -0- | -$755.65 |
| Total | $7,960.00 | $6081.85 |
***** What's going on here? There are no medical expenses listed under the MSA Family column. OF COURSE NOT, THESE MEDICAL EXPENSES WERE PAID OUT OF THE MEDICAL SAVINGS ACCOUNT!
The insurance premium, medical expense and tax savings for the MSA family comes to $1,878.15
$3,487.50 was contributed to the MSA account. However, only $2,500.00 was used for Qualified Medical Expenses. These leaves a balance of $987.50 in the Medical Savings Account that can be used for medical expenses in 2001.
The "true" savings are obtained by adding up the insurance premium, medical expense & tax savings ALONG WITH the balance in the MSA at the end of 2000:
| Insurance Premium, Medical Expense & Tax Savings | $1,878.15 |
| Balance in MSA at years end. | $987.50 |
| Total Savings for the MSA Family | $2,865.65 |
How much work do you think you have to do in order to realize these savings? Let’s take a wild guess and say it takes five hours to learn about the program, think it over, fill out the health insurance application and the MSA enrollment card, and keep a record of qualified medical expenses. Is an hour of your time worth $573.13? You have already invested some time by visiting this web site.
The above estimate is conservative. I am comparing identical insurance plans that provide coverage without "unpleasant surprises". What you should really do is compare your current health plan to a MSA qualified plan with a company that will not give you any "unpleasant surprises".
The above estimate does not even include the interest income that may have been earned during the year! Remember, interest earned on the account and used for qualified medical expenses is NEVER TAXED.
This example shows just the savings for the first year. My Goodness! Can you imagine what the savings will be like if your MSA had some real cash value and earned some real interest income? This interest income is not reported to any taxing authority. It truly is "Tax Free" Income.
Hahn Agency would like to be your MSA Health Insurance Broker. For a cost comparison customized for YOUR family, please request a quote or give us a call at 847-699-6590.
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