MSA's Can Be a Windfall for All

Policy Backgrounders | Health

No. 157
Friday, November 02, 2001
by Greg Scandlen


  1. P.L. 104-91, Title III (A)(220).
  2. John C. Goodman and Gerald L. Musgrave, Patient Power (Washington, D.C.: Cato Institute, 1992).
  3. Letter from Robert Reischauer, Director of the Congressional Budget Office, to Rep. Pete Stark (D-Calif.), Chairman of the Subcommittee on Health, House Ways and Means Committee, September 17, 1992.
  4. John C. Goodman and Gerald L. Musgrave, "Controlling Health Care Costs with Medical Savings Accounts," National Center for Policy Analysis, NCPA Policy Report No. 168, January 1992.
  5. For example, a $500 increase in the deductible may lead to a premium reduction greater than $500.
  6. See
  7. See Sean Matisonn, "Medical Savings Accounts in South Africa," National Center for Policy Analysis, NCPA Policy Report No. 234, June 2000.
  8. See
  9. Greg Scandlen, "MSAs for Everyone, Part II," National Center for Policy Analysis, Brief Analysis No. 319, March 31, 2000. Available at
  10. For information, see:
  11. For information, see:
  12. For information, see:
  13. Victoria Craig Bunce, "Medical Savings Accounts: Progress and Problems under HIPAA," Cato Institute, Policy Analysis No. 411, August 8, 2001, p. 9.
  14. "An Employer's Guide to Consumer-Directed Healthcare Benefits," Wye River Group on Health Care, October 2001. Available at See also David F. Ogden and Michael G. Strum, "Defined Contribution Health Plans: The Shape of Things to Come?" Benefits Perspectives, Milliman and Robertson, Spring 2001.
  15. HIPAA was known as the "Kennedy-Kassebaum Bill" before it was enacted.
  16. All quotes from the Congressional Record for the relevant dates.
  17. Gail Shearer, Letters to the Editor, Wall Street Journal, April 28, 1997.
  18. Iris J. Lav and Edwin Park, "Likely Medical Savings Account Amendment to Patients Bill of Rights Could Drive Up the Price of Health Insurance Premiums and Increase the Number of Uninsured," Center on Budget and Policy Priorities, June 13, 2001. Available at
  19. "Employer Health Benefits: 2001 Summary of Findings," The Kaiser Family Foundation and the Health Research and Education Trust, September, 2001. Available at
  20. From a presentation by Ken Sperling, Hewitt Associates, to the Managed Health Care Association, May 30, 2001.
  21. "Money Management Strategies," Consumer Reports, March, 1997.
  22. John C. Goodman and Gerald L. Musgrave, "Twenty Myths about National Health Insurance," National Center for Policy Analysis, NCPA Policy Report No. 166, December 1991. Available at
  23. One software company estimates that "60 percent of all health insurance claims are still paper-based, requiring a processing time of 10 to 20 days at a cost of $14-$18 to process each claim." HNC Software Solutions, "Welcome to the Revolution," .
  24. Some have suggested that eliminating this paperwork through a single-payer system would possibly free up over $100 billion a year to pay for direct services. See Carol Stevens, "Will Administrative Savings Really Pay for Health Reform?" Medical Economics, October 25, 1993, p. 146+.
  25. Information on the SimpleCare program is available at
  26. In practice, this hasn't happened to any great extent yet. Because MSA enrollment is so small, most companies currently want the MSA claim to be processed just like a regular PPO claim.
  27. Regina Jefferson, "Medical Savings Accounts: Windfalls for the Healthy, Wealthy & Wise," Catholic University Law Review, August 1999, p. 132.
  28. Joseph Newhouse, Free For All?: Lessons from the Rand Health Insurance Experiment (Cambridge, Mass.: Harvard University Press, 1993).
  29. Ibid, p. 41.
  30. Ibid, p. 338.
  31. Ibid.
  32. The law allows individuals to deposit up to 65 percent of the deductible in the MSA every year. Families may contribute up to 75 percent of their deductible.
  33. The exception is for medical expenses paid from the MSA but not covered by the health plan.
  34. Experience suggests that, on the average, employees will spend about half their MSA deposit in any given year.
  35. For example, this writer was running a small trade association in the early 1990s. Our five-person group switched from a $250 deductible PPO in one year to a $1,000 deductible FFS program and saved $973 per person in premiums.
  36. The out-of-pocket costs could be tax-advantaged if an employer has set up a Section 125 Flexible Spending Account (FSA), but since any employee money put into an FSA is forfeited at the end of the year if not used for medical expenses, relatively few employers have made them available and still fewer employees make use of them.
  37. Specifically, UI guessed that the premium for a traditional plan would be $1,701, while the premium for a high-deductible plan would be $1,110 - a savings of $591. The total out-of-pocket expense (deductible and coinsurance) for the traditional plan was $1,250, and the total out-of-pocket expense for the MSA program was a $2,000 deductible. So the MSA holder was subject to $750 more in out-of-pocket spending at the maximum. Subtracting the premium savings from the extra out-of-pocket costs leaves a difference of only $159, which is a trivial amount that could be erased by a 10 percent error in the premium estimate. In fact, UI's assertion that raising a deductible by $1,750 results in a premium savings of only $591 is at best unreliable and unsupportable. Len M. Nichols et al., "Tax Preferred Medical Savings Accounts and Catastrophic Health Insurance Plans: A Numerical Analysis of Winners and Losers," Urban Institute, April 1996.
  38. Robert O. Morgan, Beth A. Virnig, Carolee A. DeVito and Nancy A. Persily, "The Medicare-HMO Revolving Door - The Healthy Go In and the Sick Go Out," New England Journal of Medicine, Vol. 337, No. 3, July 17, 1997, pp. 169-175; and Bernice Steinhardt, "Medicare: Fewer and Lower Cost Beneficiaries with Chronic Conditions Enroll in HMOs," Report GAO/HEHS-97-160, August 18, 1997, U.S. General Accounting Office, Washington, D.C.
  39. Robert Blendon et al., "Understanding the Managed Care Backlash," Health Affairs, July/August 1998.
  40. Dana P. Goldman, Joan L. Buchanan and Emmett B. Keeler, "Simulating the Impact of Medical Savings Accounts on Small Business," RAND Corporation, HSR: Health Services Research 35:1 Part 1, April 2000, pp. 53-75. Abstract available at
  41. Ibid, p. 71.
  42. Jefferson, "Medical Savings Accounts: Windfalls for the Healthy, Wealthy & Wise," p. 129.
  43. Matthew J. Eichner, Mark McLellan and David Wise, "Insurance or Self-Insurance?: Variation, Persistence and Individual Health Accounts," National Bureau of Economic Research, NBER Working Paper 5640, June 1996, p. 5.
  44. They called it an "Individual Health Account."
  45. Ibid, p. 6.
  46. Ibid, p. 4.
  47. One author writes, "Opponents, however, argue that this price shopping will result in a neglect of preventive care, such as annual checkups." Jefferson, "Medical Savings Accounts: Windfalls for the Healthy, Wealthy & Wise," p. 123, footnote 134.
  48. The South African model provides first dollar coverage to "non-discretionary" spending and applies the deductible only to those services it considers discretionary. Non-discretionary includes hospital inpatient admissions and medications for chronic conditions such as diabetes and asthma. See Matisonn, "Medical Savings Accounts in South Africa." It is not hard to imagine a plan also providing first dollar coverage for proven preventive services, such as well-baby care, if there were more flexibility of benefit design allowed by Congress.
  49. Matisonn, "Medical Savings Accounts in South Africa.".
  50. This is a fundamental error in many of the early critiques of MSAs. A more recent study conducted by researchers at the Agency for Health Care Policy and Research tries to correct this mistake. It says, "The MSA studies cited above treat the employment-related health insurance market as a single entity (pool).... In practice, however, the insurance market may not function as a single pool, and the insurance choices in one pool need not affect the premiums in another pool." Daniel Zabinski et al., "Medical Savings Accounts: Microsimulation Results from a Model with Adverse Selection," Journal of Health Economics 18 (1999), p. 196.

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