There is considerable interest in new individual health care accounts for employees (or individuals) to purchase individual health care services. This interest is intensifying due to: escalating premiums for traditional health insurance premiums; health cost inflation due to increased consumerism, pharmaceutical inflation, and new medical technologies; the possibility of self-insured employer liability under proposed patient rights legislation; and growing dissatisfaction with other methods of cost control such as managed care.

One of the most prominent types of new health accounts is the "Medical Savings Account (MSA)." An MSA is a federally-qualified, tax-exempt individual health acount that an individual uses to pay their health care expenses. It is similar to an Individual Retirement Account (IRA) that saves up untaxed money, but is used to fund health care expenses instead of retirement income. Unlike an FSA, money can accumulated from one year to the next and be withdrawn as cash with some limitations. Some MSAs come with a checkbook or debit card to withdraw funds from the account to pay health care bills. Generally any health care service allowed as a deduction in Section 213 of the IRS code can be paid by an MSA. Often, MSAs can pay for health care without the restrictions on provider, price, and services imposed by most group health insurance.

MSAs are part of a movement toward "Consumer Driven Health Care" in which consumers have a more active role in deciding what health care they receive and from whom. MSAs are common in Singapore, South Africa, and China. Currently, they are not common in the U.S. In the U.S., "Archer Medical Savings Accounts (MSAs)" were created by HIPAA in a pilot program that lasts until at least the end of 2003 when it may be continued or not. Employers who offer qualified MSAs before the end of 2003 and have at least 20% of the employees start MSAs with contributions of at least $100 are guaranteed to be able to offer MSAs past 2003.

MSA funds left over at the end of the year are not lost like those in a FSA. They "roll over" for use in future years. You can withdraw cash from a MSA, but must pay income tax and also a withdrawal penalty for cash withdrawals before retirement. You can also take funds in a federally-qualified MSA with you if you change jobs to another company that is qualified to offer MSAs or if you stop working. MSA funds are not taxed when they are used to pay for long-term care insurance, COBRA continuation coverage, or health insurance when receiving unemployment compensation.

In theory MSAs could be used alone, but in practice MSAs are accompanied by a high-deductible health insurance ("catastrophic insurance") policy that pays bills above a large deductible. This creates three tiers of payment. First, health care bills up to the MSA account amount are paid by the MSA. Second, bills over the MSA amount and under the catastrophic insurance deductible are paid out of the individual's pocket. Third, any bills over the deductible of the high-deductible insurance are paid by that insurance. For an MSA to be federally qualified, the annual MSA contribution can be no more than 65% of the deductible for the high-deductible policy for family coverage or 75% for individual coverage. Generally, you cannot get an MSA if you have comprehensive health insurance that does not have a high deductible.

Federally-qualified MSAs in the U.S. have three significant restrictions: (1) MSAs can not be offered by an employer with more than 50 employees; (2) MSAs can not be funded by a blend of employer and employee contributions; and (3) the MSA contribution must be no more than a certain percentage of the catastrophic insurance deductible. Currently, few people have MSAs in the United States. MSA advocates say that this is due to federal restrictions. MSAs may be like HMOs were three decades ago when the federal government had significant restrictions on federally-qualified HMOs. When these restrictions were lifted, HMOs grew rapidly.

People who are self-employed or married to someone who is self-employed may be eligible for an Archer MSA with high-deductible health insurance. Self-employed individuals may not contribute more than their net earnings from the trade or business that qualifies them as being self-employed. Employees of small employers may not contribute more than they earn from that employer.

MSA advocates believe that MSAs can remove managed care intrusions from the patient-physician relationship, improve health care quality and contain costs. MSA opponents believe that MSAs will attract mainly healthy people, leaving the chronically ill behind in traditional health insurance with skyrocketing premiums. Opponents are also concerned that people with MSAs may neglect preventative health care, that MSAs will turn into tax-avoidance vehicles for the wealthy, and that employers will use MSAs as a way to cut back on their employees' health benefits.