Do you hate your health insurance company? If you are a consultant with an individual plan, you probably should -- your rates do not compare with those that large companies can obtain for their employees, and the amount of coverage you are getting is likely less than you deserve. Maybe your spouse's employer offers a good plan, but if you're not that lucky, then it's time you looked at a medical savings account (MSA), which few people have heard of and even fewer people use. But MSAs are to health insurance what IRAs and 401(k)s are to investing: a good deal that you should pass over only by conscious choice.

Quite simply, an MSA lets you use pretax dollars to fund medical expenses. It is available to self-employed individuals whose spouses' plans do not include family coverage, and to firms with 50 or fewer employees. You combine an MSA with a high-deductible health insurance plan. How high? Very high. The deductible must be between $3,000 and $4,500 for families, and between $1,500 and $2,250 for individuals. Before you panic, realize that that knocks premiums down significantly -- for me, from $400/month with a $500 deductible down to $150/month with a $4,500 deductible. That's an annual savings of $3,000 right there; that can go a long way toward paying off the deductible.

The real magic is in the MSA, though. The federal government lets you take 75 percent of the deductible amount, which for me is $3,375 per year, and deposit it -- using pretax dollars -- into your MSA. The MSA can be used to pay for all qualified medical expenses, even those not covered by your insurance, like dental and vision expenses. At a 31 percent tax rate, that translates to an annual savings of over $1,000.

It gets better. You don't have to spend your MSA each year; you can allow it to grow. The MSA account earns interest, and the MSA provider can offer investment options. Once you reach retirement age, you can withdraw from it like an IRA, paying tax at that time -- or if you're smart, you can use it to pay for medical expenses associated with old age (including nursing home insurance premiums), and never have to pay tax on the money. If you do the math, and you should, as every person's situation is different, you will see that you come out way ahead in nearly all scenarios. If you withdraw before retirement age for anything other than medical expenses, you will pay both tax and a 15 percent penalty.

Intrigued? Here are the mechanics. First, only a few insurance companies in the US offer MSAs. One major one is Fortis (http://www.fortis.com), which I chose. I am satisfied so far, especially with a lifetime policy of $5 million, compared to my last crummy policy of only $1 million. The insurance company can also manage the MSA, though you don't have to obtain the insurance and MSA from the same company. The MSA company provides deposit slips, and you send in checks during the year that are credited to your account.

When you show the doctor your insurance card, the doctor charges the insurance company, which pays nothing (assuming you're still satisfying the deductible), and you finally get the bill. You pay for it and record your expenses. You can then contact the MSA company at any time and report your medical expenses, and it will send you a check for that amount. You don't have to prove the expenses to the company, but you will have to prove them to the IRS if you are ever audited. So file all your paperwork carefully. If the insurance company is managing the MSA, you can have them pay the medical bill directly out of your MSA, but I prefer to control the cash flow.

What's the downside? You have to shuffle a little more paper, but not much. You do feel a little more exposed due to the high deductible, but that just means managing your cash, since your total medical expenses should be lower -- potentially much lower. Just think about those high monthly premiums that you're no longer paying. Finally, realize that MSAs have only been around for several years and are still in an experimental stage. Those already on board will not likely be affected by any program changes, but there may be restrictions in the future. I've covered the fundamentals, but before you take the plunge, I recommend doing some research to determine whether an MSA makes sense for you, and using an insurance agent who can explain the details. But you should certainly check it out; it can save you a lot of money.

For more information, search for "medical savings account" on the Internet. Or take a look at:

• http://www.lowinsure.com/MSA.htm
• http://www.capitalismmagazine.com/2000/august/afcm_astorino1.htm

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