What is a Medical Savings Account?

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  • Written By: Mary McMahon
  • Edited By: C. Wilborn
  • Last Modified Date: 23 January 2020
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A medical savings account is a bank account in which people can deposit money to cover future health expenses. These accounts receive special tax protections which are offered by the government as a form of incentive for savings. The protections offered vary, depending on the nation and the nature of the account. In order to receive tax benefits, people also need to make sure that their accounts are fully qualified.

The idea behind a medical savings account is that it allows people to set money aside to cover medical expenses which may arise as routine matters or emergencies. The account can supplement health insurance coverage provided through an insurance company or employer, or it can be used to supplement government health care programs. People who do not have access to insurance or government health care may use a medical savings account as a primary source of funds to pay for medical expenses.

Funds deposited into a medical savings account may be tax deductible, up to a certain amount every year. In addition, people are not taxed on interest earned. If people withdraw funds to cover qualified medical expenses, there is no tax penalty for doing so. Withdrawing funds to cover other expenses will trigger a tax, however. People can change medical savings plans, rolling their plan over to a different bank, and in some cases they may be able to switch a medical savings account over to another type of protected savings account, such as a retirement account.


Also sometimes called a health savings account, a medical savings account may be opened by an individual or be provided as part of a benefits package at a job. The individual owns the account and retains the right to move the account in the event of a new employment opportunity. Employers may make matching contributions into the account or make other arrangements, depending on the nature of their benefits plans. Many nations provide tax incentives for employers to contribute to medical savings accounts.

The terminology used to refer to such accounts is a bit different in the United States, with medical savings account and health savings account not being interchangeable terms. In the United States until 2003, people could enroll in medical savings accounts known as Archer medical savings accounts or Archer MSAs. These were intended for self-employed people and small businesses, and were designed to supplement insurance. After 2003, people in the United States could open health savings accounts, which were open to more people and provided more options.



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