Because they usually can't qualify for group insurance plans, these groups often have trouble finding affordable medical coverage, said Jim Libbin, farm management specialist with New Mexico State University's Cooperative Extension Service . A tax law change for 1997 created medical savings accounts or MSAs. Setting up the account is a two-step process. Health insurance with a higher deductible costs less because insurers don't have to process claims until the deductible is met, he explained. Money deposited in an MSA is for medical bills and cannot be used to pay insurance premiums, Libbin said.
Account holders pay a penalty if the money is withdrawn for anything other than medical expenses.
However, a major advantage is that the money can stay in an interest-bearing account if it's not used during the year. Using the account is fairly simple, Libbin said. The Internal Revenue Service will allow up to 750,000 people to open MSAs in 1997 as part of a trial enrollment, Libbin said. For more information about opening an MSA, talk to your tax adviser.