NCPA - National Center for Policy Analysis

Cato: Removing Crippling Restrictions on MSAs

August 22, 2001

Congress should "peel away the remaining legislative and regulatory restrictions" on federally-qualified Medical Savings Accounts, says Victoria Craig Bunce of the Council for Affordable Health Insurance.

In 1996 Congress authorized a limited demonstration project for MSAs. MSAs allow individuals to accumulate tax-free savings for out-of-pocket medical expenses, while covered by a high-deductible insurance policy.

  • However, the legislation restricts MSA participation to companies or organizations with 50 or fewer employees.
  • That restriction, says Bunce, is largely responsible for holding participation down to probably less than 100,000 persons -- far below original predictions of 750,000 participants.
  • The federal MSA program was flawed due to other restrictions and unnecessary complexities, hampering the design of consumer-friendly MSA products.
  • For instance, time limits on the demonstration project have discouraged many employers and insurance marketers from participating in the program.

Bunce advises permanent authorization of tax-qualified MSA insurance options, the lifting of enrollment caps, eligibility extended to all businesses and workers, more flexible deductible ranges, full and flexible MSA funding, and the removal of state regulatory barriers to MSA participation.

Source: Victoria Craig Bunce (Council for Affordable Health Insurance), "Medical Savings Accounts: Progress and Problems Under HIPPA," Policy Analysis No. 411, August 8, 2001, Cato Institute, 1000 Massachusetts Ave., N.W., Washington, D.C. 2001, (202) 842-0200.

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