Medical Savings Accounts (MSAs) are probably the single most popular idea on Capitol Hill. In this session of Congress they have been included in 24 different proposals with 243 cosponsors. They have been endorsed by Democrats and Republicans, liberals and conservatives - by people as divergent in views as Senator Harris Wofford (D-PA) and Senator Phil Gramm (R-TX).

At the same time, Medical Savings Accounts are being attacked on the left, on the right and by special interests. They have been criticized by the liberal New York Times and the conservative American Enterprise Institute. The most vocal criticism comes from large insurance companies who fear a huge loss of premium income if MSA deposits are tax free. Most of the criticisms are bogus. Let's see why.

Bogus Argument: Medical Savings Accounts Won't Control Costs Because...

Response: The strongest argument in favor of MSAs is that their use will control health care costs. By choosing a high deductible rather than a low one and putting the premium savings in an MSA, employees gain control over a large portion of their own health care dollars. Since MSAs are their private property, when they spend a dollar from an MSA they know that they are spending their own money rather than an employer's or an insurance company's. With this incentive, most employees find ways to cut spending without harming their health.

The critics present a number of ingenious arguments about why MSAs won't control costs. What they ignore are the facts. Even without the advantage of tax free deposits, many companies have already adopted MSAs and their experiences prove that MSAs work.

• Until the IRS forced a change in the plan, Quaker Oats had a high-deductible policy and paid $300 annually into the personal health account of each employee, who got to keep any unspent balance; the result: over the past decade the company's health care costs grew an average of 6.3 percent per year, while premiums for the rest of the nation grew at double digit rates.

• Forbes magazine pays each employee $2 for every $1 of medical claims they do not incur up to a maximum of $1,000; the result: Forbes' health costs fell 17 percent in 1992 and 12 percent in 1993.

• Dominion Resources, a utility holding company, deposits $1,620 a year into a bank account for the 80 percent of employees who choose a $3,000 deductible rather than a lower deductible; the result: the company has experienced no premium increase since 1989, while other employers faced annual increases of 13 percent.

• Golden Rule Insurance Company deposits $2,000 a year into an MSA for each employee who chooses a $3,000 family deductible; the result: in 1993, the first year of the plan, health costs were 40 percent lower than they otherwise would have been.

In virtually every instance in which companies have empowered consumers rather than bureaucracies, the companies - and their employees - have saved money.

Response: Individuals frequently outperform third-party bureaucracies in deciding whether to obtain a service and in negotiating a price if they do obtain it. The tradition in medicine has been to undercharge individuals and overcharge bureaucracies, not the other way around. Furthermore, among different medical services, costs have been contained largely in proportion to the percentage of payments made out-of-pocket by patients. Over the past 30 years, for example, drug costs (mainly paid by individuals) have increased modestly, while hospital costs (mainly paid by third parties) have soared.

Most patients already know that many physicians will give them a better deal if they pay their own bills - especially at the time of treatment - rather than ask the physician to collect from a third-party payer. Increasingly, the same is true of hospitals. Although they rarely discuss it, many hospitals have special package prices and discount rates for uninsured patients who pay their own bills - usually lower than the fee charged to insurance companies and large employers.

Will individuals always outperform bureaucracies in the medical marketplace? That's not clear, but the burden of proof is on anyone who argues in favor of bureaucracies. There also may be a third option. Most employers already have negotiated special discounts with doctors and hospitals. If employees find they cannot get a better deal on their own, they can take advantage of their employer's discount, even if they are paying the bill from their MSA.

Bogus Argument: ... people would spend MSA funds on services not covered by an employer's policy.

Response: Many employer policies do not cover such providers as chiropractors and marriage counselors and such services as acupuncture or in vitro fertilization. Given access to MSA funds, would employees spend more on these types of services? Some might. But many employees can spend pretax dollars on these services today through Flexible Spending Accounts.

More importantly, this argument is irrelevant. Health care spending is a social problem only because most of the time we are spending someone else's money. If we were spending our own money, it would not be a social problem. For example, most of us do not know or care how much the nation spends on shoes, or what shoe spending is as a fraction of GDP. Similarly, we have no social reason to care how much people spend on chiropractors - as long as it is their own money.

Bogus Argument: ... Medical Savings Accounts would undermine the ability of managed care to control costs.

Response: Some evidence suggests that managed care has improved quality and reduced costs for such very expensive procedures as heart surgery. Because these procedures are so costly, it pays to spend money managing them. However, there is very little evidence that managed care saves more than it costs for smaller expenditures such as CAT scans and blood tests. The view that managed care works better than Medical Savings Accounts should be tested in the market, not imposed by fiat.

If the purpose of managed care is to save money by rationing health care, it probably does work best when the managers control all of the money. But if the purpose is to meet medical needs in an efficient way, it probably works best if the patients have a financial interest in seeing their needs met efficiently.

Bogus Argument: ... MSAs would affect a very small percentage of total health care spending.

Response: In a typical insurance pool, 4 percent of the people spend about half the health care dollars. However, one-third to one-half of all health spending is on bills below $3,000 to $5,000. That's why MSAs would result in such a huge transfer of money from third-party payers to individuals.

Moreover, when individuals eliminate waste for themselves, in many cases they frequently also reduce costs for their employers as well. For example, if a male employee with a $3,000 deductible finds a way to avoid a $6,000 operation (say, because a second opinion establishes that the surgery is unnecessary), he saves $3,000 for his employer as well as $3,000 for himself.

Bogus Argument: ... people would use MSAs as a device to get a tax subsidy for out-of-pocket spending.

Response: Suppose that people did not increase their deductible, and that every time they had a medical expense they deposited their share of the costs in an MSA to pay the bills in order to get a tax deduction. In this case, there would be no reduction in health spending. In fact, there might be an increase because the tax deductibility of MSA deposits would amount to a subsidy for out-of-pocket health care spending.

To discourage such behavior, most serious MSA proposals restrict MSA deposits to the difference in premiums between high- and low-deductible plans. Well-designed MSA plans also prohibit making deposits in anticipation of paying medical bills. Instead, they require people to make annual decisions about their insurance coverage and MSA deposits - before, not after, medical episodes occur.