Archer Medical Savings Accounts - A Flash In The Pan or a Light At The End of a Long Tunnel?

According to a recent article on MSN Moneycentral, Archer Medical Savings Accounts are now, as it stands, going to be removed from the list of allowable deductions in the upcoming tax season. Of course, there is still time for things to change, but as this article about Archer Medical Savings Accounts explains, there is only a certain amount of time left until the deduction is gone.

What Is an Archer Medical Savings Account?

Before reading this article, I was not sure what exactly an Archer Medical Savings Account was and what the reason was for it existing in the first place. Archer Medical Savings accounts are the compliment to the High-Deductible Insurance Plans that have become so prevalent. Think of the United Healthcares, Cignas, etc when you consider High Deductible plans. For the most part, these are not HMO plans.

High medical deductibles mean that for the average family, a large amount of expenses must be incurred before an insurance policy will actually kick in. That means that there is a real problem with regard to covering the costs. Many companies that are offering these plans are forced to offer them because they cannot afford the plans that provide a better level of coverage. This means, of course, that the premiums paid by the company and the employee are lower. This lower premium is then offset by the higher deductible.

No Relief In Sight

So, as a result of the higher deductibles, these Archer Medical Savings Accounts were created as a means to cover qualified medical expenses by contributing pre-tax dollars into an account that could later be used to pay for these expenses as a stop-gap solution until the deductible costs were completed. The interesting thing, from what I can tell, is that the amounts that were sitting in this account are able to grow tax-free until they are used. And after age 65, they are able to be withdrawn for any expenses, subject to normal income tax

All Good Things Must Come To An End

This sounds like a great idea. Another tax-deferred/tax-free option to save for expenses as you approach retirement. I was immediately wondering what the limits were and how my company might set one up. The catch, was that this type of tax plan could only be used in conjunction with particular high deductible insurance plans. However, as it stands, the end might be in sight for these plans as we continue to expect our citizens to bear more and more of the rising health care costs, only this time, without any additional assistance from the government. Since, without the deduction, what is the point of the account anyway? What is still uncertain, however, is whether or not the funds sitting in existing accounts are now taxable or not? Another big question with no sure answer until the final fate of these plans is determined.

The following links were used as research for this article:
http://www.statefarm.com/mutual/investors/pricing_perf/msa.asp
http://www.usatoday.com/money/perfi/taxes/2003-12-04-mym_x.htm