When Kris and Tammy Kloxin started Designs By Tammy, an Edmond, Oklahoma, flower shop, last January, the last thing they thought they'd get is a good deal on health insurance. But earlier this year, the Kloxins purchased a new, high-deductible health-insurance policy and began contributing about $1,000 per year to a medical savings account (MSA) administered by their insurance company. With family coverage and a $3,000 annual deductible, their total health-insurance costs--including the policy premiums and MSA contributions--have stayed the same.
The difference is the Kloxins' MSA contributions are fully deductible from their federal income taxes. And if they don't spend all the money in their MSA in a given year, they can leave it in the account for use in subsequent years while it accrues tax-free interest.
"I feel like I have more control over my insurance," Kris says. "Before, the insurance company got our money whether or not we went to the doctor. Now if we don't go to the doctor, part of our premium money is still ours, because it goes into the MSA."
The Kloxins are benefiting from a demonstration project authorized by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The Act will allow 750,000 small-business owners and their employees to open MSAs and fund them with tax-deductible contributions between January 1, 1997, and December 31, 2000, if they also purchase a health-insurance policy with an annual deductible of between $1,500 and $4,500.