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WASHINGTON-The growth of tax-favored medical savings accounts finally is picking up steam, though growth still is far below earlier predictions.

Through June 30, 22,051 MSAs had been established, according to an Internal Revenue Service census. That is more than double the 9,720 MSAs that had been set up from Jan. 1 through April 30.

Those MSAs are authorized under a four-year pilot program Congress approved last year as part of a broader health care portability measure that curbs the use of pre-existing medical condition exclusions in health care plans.

The law's MSA provisions, which took effect Jan. 1, allow the self-employed and employees working at companies with two to 50 employees to set up tax-favored MSAs.

The recent spurt in MSAs had been expected. Insurers, agents and banks said they expected growth to pick up-after a slow initial start-as the public begins to understand how MSAs work and the tax advantages they offer.

But MSA growth will have to increase at a much faster rate before the number of MSAs approaches the limits set by Congress.

Under the 1996 law, up to 750,000 MSAs can be established through Dec. 31, 2000.

At that point, Congress will decide whether to continue the program. If legislators do end the program, however, existing MSAs will be allowed to continue.

The law also set a 375,000 cap on MSAs by April 30, 1997; 525,000 by June 30, 1997, and a 600,000 limit by June 30, 1998.

Under a tax-favored MSA, which must be linked to a high-deductible indemnity plan, contributions earn tax-free or tax-deferred interest, depending on how participants use the contributions.

Money in an MSA can be withdrawn tax-free to pay for uncovered health care-related expenses, such as a medical claim that falls under a plan deductible, or an expense, like eyeglasses, that an employee's health care plan does not cover. Amounts withdrawn for non-health care-related purposes are taxed as ordinary income, with a 15% surcharge.

The 15% surcharge, though, is not assessed on funds withdrawn by people after they turn 65.

Of the 22,051 MSAs that have been established, 3,670 were for people not previously insured. As part of last year's political compromise giving MSAs tax-favored status, those individuals' MSAs are not counted against the congressionally set MSA caps.

Separately, Merrill Lynch & Co. Inc., the nation's largest full-service stockbrokerage, announced earlier this month that it is offering an MSA product to employees at small companies and to the self-employed.

Individuals will be able to select their own insurers from which to purchase a high-deductible medical plan, but Merrill Lynch will manage individuals' MSAs and give account holders numerous investment options for funds contributed to MSAs. Medical expenses could be paid for by using a VISA debit card or a checkbook provided with the account.

The new program "provides choice and flexibility to entrepreneurs, small-business owners and employees whose previous health insurance options were limited," said Allen Jones, a Merrill Lynch senior vp in Princeton, N.J.