What is a Medical Savings Account (MSA)?

A Medical Savings Account (MSA) is designed specifically to help individuals save for medical expenses while offering tax benefits. It functions in conjunction with a high-deductible health plan, allowing individuals to set aside funds on a pre-tax basis to cover qualified medical expenses. When the employer contributes to the MSA, it further enhances the capacity of the account holder to manage healthcare costs.

The key feature of an MSA is that it combines both personal savings and contributions from employers to create a pool of funds dedicated to covering out-of-pocket medical expenses. This arrangement encourages participants to be more cost-conscious regarding their medical care while still having a financial safety net provided by employer contributions.

Understanding that an MSA is distinctly different from standard health insurance plans, which typically feature fixed premiums without the same savings and tax advantages, helps clarify why the other options do not accurately represent the nature of an MSA. Additionally, it is important to note that an MSA is not a retirement savings plan; instead, its primary purpose focuses on facilitating medical expense savings during an individual's working life.