Medical Savings Accounts: A Viable Option For Small Businesses
Health care expenses can place a large strain on a person’s income, particularly as we age. For small business owners, or for those who work in companies with fifty employees or less, the cost of health care can be particularly daunting, since these individuals are often responsible for their own medical care, and/or are not able to take advantage of some of the other types of health care savings plans offered by larger corporations. The good news is that there are several options for those who feel overwhelmed by the cost. One such option, a Medical Savings Account, allows qualified participants to pay for a portion of their health care expenses on a tax free basis. Medical Savings Accounts can be set up by employers, or employees can provide them for themselves, although the cost is typically more than the cost of group insurance, the overall savings can nonetheless add up.
How Do Medical Savings Accounts Work?
The first step is to buy a high deductible plan, or HDHP. Individual costs for this type of plan range from $1,700 to $2,650 per year, and family plan deductibles must be at least $3,500 to a maximum of $5,250 yearly. Annual out of pocket expenses are capped at $3,500 for individuals and approximately $6,450 for families.
Once you’ve purchased an HDHP, the next step is to open a tax deductible medical savings account. With this type of account, you are allowed to deposit up to seventy five percent of your deductible amount for a family plan, for sixty five percent for an individual plan, into the account. Once deposited, these funds are held by either the bank, insurers, or your employer, who can be authorized to make deposits on your behalf. With this last option, the money is also free of Social Security tax, but either way, your Medical Savings Account will earn tax deferred interest. Keep in mind, however, that if your employer deposits less than the maximum allowable amount, you will be unable to add to it, and you and your employer cannot make deposits simultaneously into your account during the same year.
How Can I Use The Money In My Medical Savings Account?
Anytime that you have a qualified medical expense, you can use the funds in your Medical Savings Account to pay for it, and any money that is not spent during a one year time period is carried over into the next year. You may also be able to use your Medical Savings Account to pay for medical expenses that may not be covered by your insurance, such as glasses and contacts.