NCPA - National Center for Policy Analysis

Making Medical Savings Accounts Better

June 11, 1999

In 1996 Congress created a demonstration project permitting small employers and the self-employed to establish tax-free Medical Savings Accounts (MSAs) combined with high-deductible health insurance. MSA funds are typically used to pay small and routine health care bills, while account holders rely on health insurance for more costly ones. However, Congress imposed strict limits on who can purchase MSAs and undermined their ability to work properly.

About 54,000 qualified MSA policies had been sold by December 1998, and a U.S. General Accounting Office (GAO) analysis found that almost four in every ten people who set up MSAs were previously uninsured.

However, the restrictions have diminished the popularity of MSAs among employers and consumers and discouraged insurers from offering them. In response, 43 senators are supporting five needed MSA reforms to correct problems in the original legislation.

The reforms would:

  • Lift the 750,000 limit on the number of accounts that can be established and allow all employers, not just small businesses, to offer them.
  • Eliminate the four-year sunset on MSAs so sellers will be assured of a long-term market for their new product.
  • Lower the minimum deductibles on the insurance policies combined with MSAs from $1,500 for individual policies and $3,000 for families -- at least to $1,000 and $2,000, respectively.
  • Allow people to deposit the entire amount of the insurance deductible in their MSA accounts, instead of the current limit of 65 percent of the individual deductible and 75 percent of the family deductible.
  • Let both employers and employees make contributions to the MSAs, instead of requiring either employers or employees to bear the whole cost.

In addition to reducing the number of Americans without health insurance, MSAs can solve many managed care problems by restoring money and control to patients and encouraging the reestablishment of trusting doctor-patient relationships.

Source: Merrill Matthews Jr. (NCPA vice president of domestic policy) and Jack Strayer (NCPA vice president of external affairs), "Making Medical Savings Accounts Better," Brief Analysis No. 295, June 11, 1999, National Center for Policy Analysis, 12770 Coit Rd., Suite 800, Dallas, Texas 75251, (972) 386-6272.

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