 Personal Finance PowerPoint Presentation, Archer M.S.A. Prepare to get financially fit by practicing personal finance. Insurance is part of our long-term risk mitigation strategy where we follow the adage of measure twice cut once put in a formal process in place, looking something like setting the goals, developing a plan to reach them, put the plan in action, review the results and repeat the process periodically. Most of this information can be found at Investopedia, Archer M.S.A., which you can find online. Take a look at the references, resources, continue, your research from there. This is by Michelle Scott, updated January 15th, 2022. In prior presentations, we've been talking about insurance in general, went to the medical insurance, went to the long-term care, and now we're talking about the Archer M.S.A. in conjunction with those topics. So what is an Archer M.S.A.? An Archer M.S.A. is a medical savings account, M.S.A., originally enacted in 1996, and named for former Texas congressman, Bill Archer, who sponsored the amendment that led to its establishment. As with more recent health savings account, that's the H.S.A., is the more recent idea or the more recent account you've probably been looking at, and we've talked about that in prior presentation. An Archer M.S.A. offered the account holder a tax-advantaged way to save for medical expenses. Congress opted to discontinue, so once again, Congress opted to discontinue the creation of new Archer M.S.A.s, so it's not something that you would expect coming from a new M.S.A. However, it's useful to understand for the history of how these kind of things have evolved, and if you have an existing Archer M.S.A.s, then it might still be applicable. So existing Archer M.S.A.s were allowed to continue, provided the owner continued to be eligible and the account was operated in accordance with legal requirements. Understanding the Archer M.S.A., Congress created the Archer M.S.A. specifically for self-employed individuals and for employees of small businesses with fewer than 50 employees, so it's geared towards the small businesses and self-employed individuals. Contributions to the account by the owner are tax deductible, contributions by an employer or by an employee through payroll deductions are excluded from the employee's income. So that's good. Again, you get the tax benefit. That's kind of the point of these types of things oftentimes to get that tax benefit making your, obviously your earnings and so forth go further if they're not subject to the tax. All contributions must be made in cash. Contributions to an Archer M.S.A. can be made by either the employee or the employer, but not by both in the same year. Earnings on contributed funds are not taxed and distributions from the account are tax-free. Provided funds are used to pay for qualified medical expenses. Account holders incur tax and penalties if they withdraw funds for non-qualified uses. An Archer M.S.A. must be accompanied by a high deductible health plan. So you got that same kind of relationship. We got that high deductible health plan, which is the plan that typically is gonna be the cheaper plan with a higher deductible and that higher deductible. Often what you would think lead lawmakers to want to try to give incentives to still be able to do the kind of normal maintenance kind of stuff, the preventative type of stuff, which might be an incentive that led towards some of these other ideas for people with that specific kind of plan. So obviously then, as we've seen in the past, we need to think about what kind of plan we have, what qualifies then for a high deductible type of plan and then what other kind of tax benefits might be there with relation to it. So the funds help the owner pay for expenses prior to reaching the plan's deductible as well as co-pays required by the plan and fees for qualified expenses that the plan does not cover. History of the Archer M.S.A. So again, it's nice to kind of look back and say, okay, how did this stuff develop? So we get a feel for what is happening and the reasons for it, which can give us a better understanding of how we can act in the current environment. So the Archer M.S.A. was a pilot program that its promoters believed would help limit the overuse of healthcare services. They hoped that it would make employees aware of the actual costs of healthcare services through high deductible plans and the use of their own medical savings accounts to pay for healthcare. So we've been talking about healthcare in general. So again, it's interesting to look at the healthcare sector because obviously there's a lot of political play in there and a lot of rules and regulations with it. And one of the things that we wanna keep in mind from in terms of both our decisions within the current environment we're in for our health decisions as well as kind of just our political decisions in terms of voting and whatnot, what should we be doing about this situation? Is there some give and take between the idea that you're gonna make the health insurance have market conditions because we would like to have the market conditions for health insurance because that drives health insurance typically to give the best benefits they can because of competition in the market and also to try to advance. So our advancements and things like our ability to make things like vaccines and other kinds of drugs and stuff is actually driven by the market. But of course on the downside of things we don't want people to be locked out or stuck out of the market because they can't afford things like the medical insurance and the medical care and therefore that would lead from a political perspective or us from a political decision-making process to try to say, well, how could we get everybody covered under the health insurance but not get to the point where we're gonna make it completely run by the government because that could lead to inefficiencies in the market because now you don't have the market forces which usually leads to a deterioration possibly over time of the quality of the health care or at least not an advancement as high a level of advancement as you might see if you had kind of a market-based type of system. When you put the insurance in place, of course, what happens is if you say you're insured and basically all these things are covered what happens is people look for more health care because now you've made the health care free. So if everything is covered, if you say all of your preventative stuff is covered, if you pay the insurance, then of course the incentive will be to try to maximize all of the care that you think that you could get under that coverage which if that gets out of control, it might be care that you don't actually need. You could go over the top on the preventative care possibly. So that's the balance and part of the debate that goes back and forth. So when it's unclear whether or not this program motivated more careful health care spending, its impact was limited because participants was restricted to this self-employed and employees of small businesses. Health savings accounts, HSAs were introduced in 2003 and ended up replacing the Archer MSA. So once again, we talked about the HSAs in the past. So this gives us kind of an idea of what was in there before the HSAs, an idea of why they were in there before the HSAs. And then again, if you have some existing HSAs that were in place, they might still be applicable. And then if you talk to someone that's talking about an MSA, an Archer MSA, you can get an idea about what they're talking about. While HSA participants can use their accounts as soon as the HSAs are established, they also can continue to benefit from their accounts in retirement. Although individuals can no longer contribute to Archer MSAs and HSAs once they enroll in Medicare. So Medicare being if you have your own insurance, remember these were kind of tied to that high deductible plan, which would be like the cheaper plan. Typically that's why they have this other benefit that's kind of tied to it. Obviously if you then qualify for the Medicare, you can kind of think of it as the Medicare is kind of replacing that standard type of insurance. You might have other options in that, but that would be the general kind of thought at that point. So although individuals can no longer contribute to Archer MSAs and HSAs once they enroll in Medicare, they can continue to receive tax-free distributions to pay for qualified medical expenses. Individuals aged 65 and older can also use distributions for any other purpose and will incur income tax on the amount, but no penalty. So again, if you're pulling money out, the problem with these accounts is that when you put the money in it, you're doing so to get a tax benefit, which is great. But now you got this money under this umbrella that you can't take out unless you're using it for specific purposes. And so if you take the money out and you use it for the specific purposes, you might not have to pay income tax or penalties, which would be great. If you pulled the money out and you didn't use it for the proper purpose, you might have a penalty and have to pay tax, which would not be good. And if you pulled it out possibly under certain conditions and you didn't use it in this case, individuals aged 65 and older can also use distributions for any other purpose will incur income tax on the income, but no penalty, which is still not bad because that's similar to kind of like a traditional IRA or a 401K plan, meaning you got the benefit when you put the money into it. If you get any earnings on it, while it's in that umbrella, if you don't have to pay taxes on the earnings, that would be great. And even if you're paying taxes when you pulled it out, then you got this deferral that happened during that timeframe, which that's good. So thus savings in an HSA can be valuable in retirement. HSA versus the MSA, both HSAs and the remaining Archer MSAs are tax benefit saving accounts that are meant to be used for medical expenses and that must be paired with a HDHP, that's the high deductible plan. There are however, some differences. The Archer MSA was available only to self-employed people and small businesses with 50 or fewer workers no new Archer MSAs can be established. By contrast, the HSA can be offered to employees by businesses of any size and can be created by both a self-employed and unemployed individual, which is nice because it'd be nice to get a benefit that's not tied specifically to like your work. If you don't have that, you'd still think it'd be nice to get a benefit if these are beneficial tools. HSAs may receive funding from both an employer and employee in any year rather than being limited to contributions solely from one or the other. Basically, HSAs took the Archer MSA model and expanded it. So when you're thinking about the Archer MSA, again, unless you have one that you have been putting into before and you're looking at the current thing, you're gonna say, okay, they basically have the HSAs that kind of expanded the Archer MSA model. So you would be typically comparing and contrasting at this point in time, the HSAs typically. So it should be noted that Archer MSAs and HSAs differ with respect to the requirements for HDHP deductibles and out-of-pocket expenses as well as the ceiling on contributions. The HSA requirements generally are more beneficial for the insured. For an Archer MSA in 2022, the associated HDHP must have a maximum deductible of 3,650 for an individual and a maximum of 7,300 for a family. So now, obviously we gotta get into well, what is a high deductible plan that would qualify for the contributions to an HSA or an MSA? And so then we've talked about those more in prior presentations with relation to the HSA. For an HSA, the minimum HDHP deductible for 2022 is $1,400 for an individual and 2,800 for a family. The maximum in 2022 is $7,050 for an individual and $14,100 for a family. This HSA maximum deductible for the HDHP, the high deductible plan, is lower than the Archer MSA minimum and thus more beneficial to the insured. The maximum annual contribution to an Archer MSA is 75% of the HDHPs, that's the high deductible plan, deductible amount for a family plan and 65% of the amount for an individual plan. The HSA contribution limits are more generous and are set as specific amounts adjusted regularly for inflation. For 2022, the HSA contribution limits are $3,650 for an individual and $7,300 for a family. Individuals age 55 and older can contribute to an additional catch up amount of $1,000 to an HSA in 2022. However, an Archer MSA does not allow such catch up contributions. So individuals who own Archer MSAs might find it advantageous to roll their accounts over into an HSAs to benefit for more generous HSA rules. However, in considering such a switch, the difference between the terms of the insured Archer MSA and the proposed HSA in particular, the ceiling on Archer MSA deductibles and the absence of any limits on HSA deductibles should be evaluated.