Mellon (Pittsburgh, PA; $43 billion; 1.1 million ATM cards) recently announced its foray into medical savings accounts (MSAs), the latest financial services by-product of the byzantine U.S. tax code. MSAs, if they catch on, could provide fertile ground for online banking pioneers. Here is a product so complicated it’s begging for computerized help.

Basically the MSA is an IRA-like depository vehicle that grows tax-deferred. But unlike an IRA, which is designed to stay put for a few decades until retirement, the MSA is expected to be a transaction account, solely used for medical expenses which can be paid for with before-tax dollars. The MSA is only available to employees of companies with fewer than 50 employees or to the self-employed. MSAs came into existence on Jan. 1, 1997, following legislation enacted by Congress last year. Unlike Flexible Spending Accounts (FSA) offered by many large employers, users do not forfeit funds remaining in an MSA at the end of the year. The money belongs to the plan participant and continues to grow tax-deferred. Reference: Coopers and Lybrand Tax Topics Advisory.

Mellon’s version features an interest-bearing checking account bundled with a special MasterMoney debit card from MasterCard that can be used for payment only at health care providers. Mellon is wholesaling its product to insurance companies and other third parties. Mellon’s MSA could be greatly improved with the addition of online bill payment to help users track disbursements. The ultimate MSA would feature medical bill presentment as well. Dennis Stover is VP Mellon Network Services, 412.234.2994. Gary Grosso is VP Healthcare Marketing a MasterCard, 914249.4212.