NCPA - National Center for Policy Analysis

Research Answers Critical Questions On MSAs

July 7, 2000

A four-year pilot program begun in 1996 allows small employers and the self-employed to set up tax-favored Medical Savings Accounts (MSAs) to pay for routine medical expenses, coupled with an insurance plan that meets some very specific requirements.

  • The law set a very narrow range of allowable deductibles and strict limits on other cost-sharing provisions and MSA contributions which make the program complex and hard to understand.
  • The program was limited to four years, and only available to a small segment of the insurance market, discouraging many insurance providers from participating.
  • To date, only about 100,000 "qualified" MSAs have been established.

Despite the limits of the program, critical questions about MSAs have been answered.

For instance, a common argument against MSAs is that they benefit the healthy and wealthy, but not sicker and lower-income groups. But RAND researchers found MSAs would be the choice of people who on average are the highest-risks and are considerably less wealthy than those who would choose managed care.

Thus the RAND researchers say, "...expanding MSA availability could make it a major form of insurance for covered workers in small businesses."

Researchers from the Urban Institute who tried to measure the "winners and losers" if everyone switched to MSAs found that most people would gain, including the very healthy and the very sick.

In South Africa, which has allowed much greater flexibility in program design, MSAs are now the choice of one-half of those with private insurance. MSA holders are not healthier than the general population and even the sick are better off with a well-designed MSA than with a traditional insurance plan.

Thus more flexible MSAs, with expanded eligibility, would allow more Americans to get the most from their health care dollars.

Source: Greg Scandlen (NCPA Health Policy Senior Fellow), "Four Years of MSAs:The Lessons So Far," Brief Analysis No. 327, July 6, 2000, National Center for Policy Analysis.

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