Archer MSA: What it is, How it Works, History

What Is an Archer MSA?

An Archer MSA is a medical savings account (MSA) originally enacted in 1996 and named for former Texas Congressman Bill Archer, who sponsored the amendment that led to its establishment. As with the more recent health savings account (HSA), an Archer MSA offered the account holder a tax-advantaged way to save for medical expenses. Congress opted to discontinue the creation of new Archer MSAs in 2007. Existing Archer MSAs were allowed to continue, provided the owner continued to be eligible and the account was operated in accordance with legal requirements.

Some Archer MSAs continue as active accounts to this day.

Understanding the Archer MSA

Congress created the Archer MSA specifically for self-employed individuals and for employees of small businesses with fewer than 50 employees. Contributions to the account by the owner are tax-deductible. Contributions by an employer or by an employee through payroll deductions are excluded from the employee’s income. All contributions must be made in cash. Contributions to an Archer MSA can be made by either the employee or the employer—but not by both in the same year.

Earnings on contributed funds are not taxed, and distributions from the account are tax-free, provided the funds are used to pay for qualified medical expenses. Account holders incur tax and penalties if they withdraw funds for non-qualified uses.

An Archer MSA must accompany a high-deductible health plan (HDHP). The funds help the owner pay for expenses prior to reaching the plan’s deductible as well as co-pays required by the plan and fees for qualified expenses that the plan does not cover.

History of the Archer MSA

The Archer MSA was a pilot program that its promoters believed would help limit the overuse of healthcare services. They hoped that it would make employees aware of the actual costs of healthcare services through higher-deductible plans and the use of their own medical savings accounts to pay for healthcare. It is unclear whether or not this program motivated more careful healthcare spending. Its impact was limited because participation was restricted to the self-employed and employees of small businesses.

Health savings accounts (HSAs) were introduced in 2003 and replaced the Archer MSA. While HSA participants can use their accounts as soon as the HSAs are established, they also can continue to benefit from their accounts in retirement. Although individuals can no longer contribute to Archer MSAs and HSAs once they enroll in Medicare, they can continue to receive tax-free distributions to pay for qualified medical expenses. Individuals age 65 and older can also use distributions for any other purpose and will incur income tax on the amount but no penalty. Thus, savings in an HSA can be valuable in retirement.

HSA vs. MSA

Both HSAs and the remaining Archer MSAs are tax-benefitted savings accounts that are meant to be used for medical expenses and that must be paired with an HDHP. There are, however, some differences. The Archer MSA was available only to self-employed people and small businesses with 50 or fewer workers. No new Archer MSAs can be established.

By contrast, an HSA can be offered to employees by businesses of any size and can be created by both a self-employed and an unemployed individual. HSAs may receive funding from both an employer and an employee in any year, rather than being limited to contributions solely from one or the other. Basically, HSAs took the Archer MSA model and expanded it. 

It should be noted that Archer MSAs and HSAs differ with respect to the requirements for HDHP deductibles and out-of-pocket expenses as well as the ceilings on contributions. The HSA requirements generally are more beneficial for the insured.

For an Archer MSA in 2022, the associated HDHP had a maximum deductible of $3,700 for an individual and a maximum of $7,400 for a family. For an HSA, the minimum HDHP deductible for for 2024 is $4,150 for an individual and $8,300 for a family (2025 is $4,300 for an individual and $8,550 for a family). The maximum out-of-pocket expenses is $8,050 for an individual and $16,100 for a family in 2024 ($8,300 for an individual and $16,600 for a family in 2025).

The maximum annual contribution to an Archer MSA was 75% of the HDHP’s deductible amount for a family plan and 65% of that amount for an individual plan. However, the HSA contribution limits are more generous and are set as specific amounts adjusted regularly for inflation. For 2024, the HSA contribution limits are $4,150 for an individual and $8,300 for a family (or $4,300 for an individual and $8,550 for a family in 2025). Individuals age 55 and older can contribute an additional 'catch-up' amount of $1,000 to an HSA in 2024 and 2025. However, an Archer MSA does not allow such a catch-up contribution.

Individuals who own Archer MSAs might find it advantageous to roll their accounts over into HSAs to benefit from the more generous HSA rules. However, in considering such a switch, the differences between the terms of the insured’s Archer MSA and the proposed HSA, in particular, the ceiling on Archer MSA deductibles and the absence of any limit on HSA deductibles, should be evaluated.

The Bottom Line

Archer MSAs might not be issued anymore, but their legacy is evident in the common health savings accounts that are popular today. If you have an Archer MSA, you might consider rolling it into a current HSA account.