The Medicare Prescription Drug Improvement and Modernization Act of 2003 introduced HSAs as a more widely available replacement for MSAs. They became available in 2004 and utilization of HSAs has been increasing steadily ever since.

You're only MSA-eligible if you already had the MSA as of the end of 2007, or if you enroll in eligible coverage via a small employer that offers an MSA. So, new MSA accounts are no longer allowed, but if you (or your employer) have had an MSA since 2007 or earlier, you can continue to contribute to it.

MSAs and HSAs are a lot alike....

To make contributions -- or have contributions made on their behalf -- an enrollee must have a high deductible health plan (HDHP) and no other health coverage, with the exception of certain supplemental coverage.

Also, contributions to both MSAs and HSAs are pre-tax, and employer contributions to the accounts aren't counted as income. Plus, earnings grow tax-free.

In terms of withdrawals, money can be withdrawn tax-free to pay for qualified medical expenses. And money withdrawn for other purposes is taxed, with a 20% additional tax applied if the person is under 65.

Finally, both HSAs and MSAs can be used as retirement accounts if there's money remaining in the account after age 65.

But there are some differences...

For starters, contributions to an MSA can be made by the employer or the employee, but in any given year, only one or the other may make contributions. In contrast, HSA contributions can be made by the account holder and/or employer, or by anyone else who wants to contribute on the account holder's behalf. And contributions in a given year can come from any combination of sources.

There are different requirements for the HDHP. The minimum deductible requirements are higher for plans that are MSA-eligible, but the maximum out-of-pocket amount can be significantly higher under an HSA-qualified plan. In 2024:

• An MSA-qualified health plan must have a deductible between $2,650 and $3,950 for a single individual, and between $5,300 and $7,900 for family coverage. The out-of-pocket maximum can't exceed $5,300 for an individual, or $9,600 for a family.
• An HSA-qualified health plan must have a deductible of at least $1,500 for self-only coverage, and $3,000 for family coverage. But the out-of-pocket maximum can be as high as $7,500 for an individual, or $15,000 for a family.

MSAs were only available to self-employed individuals and to employees of small businesses with no more than 50 employees. The majority of the account holders were self-employed. In contrast, the majority of people with HSA-qualified high-deductible health plans obtain their coverage from a large employer.

HSA contribution limits are adjusted by the IRS each year, but they apply uniformly to all account holders, and only vary based on whether the HDHP provides self-only coverage or family coverage. But MSA contribution limits are based on the health plan's deductible: A person with self-only coverage can contribute up to 65% of the amount of the deductible, while a person with family coverage can contribute up to 75% of the amount of the deductible.

As you've noticed, this article focuses on Archer Medical Savings Accounts (MSAs), which are not the same thing as Medicare MSAs. If you're looking into MSAs, be sure to speak with a qualified financial professional to see which is right for you.

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