Q:

What are the rules of setting up a medical savings account?

A:

Quick Answer

The rules for setting up a Medicare medical savings account require users to enroll in a high-deductible Medicare Advantage plan, reports Medicare.gov. Self-employed individuals and small businesses can no longer set up new Archer medical savings accounts, but individuals can enroll in already-existing plans, explains the Internal Revenue Service.

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Full Answer

Private insurance companies administer Medicare medical savings accounts, which are similar to health savings accounts, as part of Medicare Part C health insurance coverage, explains Medicare.gov. According to MSA plan rules, enrollees select a high-deductible insurance plan and set up an MSA with a participating bank. Both Medicare and the insurance plan deposit money into the account, which the plan participant can use to pay for health care costs until the amount spent reaches the limit of the plan's deductible. Once the participant spends enough to reach the deductible, either from the MSA or out-of-pocket payments, the plan pays for Medicare-covered expenses.

Archer medical savings accounts are trusts that self-employed people or businesses with no more than 50 employees set up to accumulate funds tax-free for medical expenses, states the IRS. As of Jan 1, 2007, only individuals already enrolled in Archer MSAs or employees enrolling in Archer MSAs that employers have already set up are eligible to belong to Archer MSAs. According to Archer MSA rules, contributions are tax deductible, and interest, earnings and distributions used for qualified medical expenses are tax free.

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