ESTIMATION OF INITIAL MEDICAL SAVINGS ACCOUNT BALANCE IN RELATION TO PERSONAL HEALTH CARE EXPENSES IN POLAND

Abstract

The purpose of this paper is to analyze Medical Savings Accounts as an instrument used to finance private health care expenditure incurred by individuals in Poland. An Medical Savings Account (MSA) represents a mechanism of health care financing, which relies on the accumulation of personal savings to cover the costs of health care services at the time of consumption. The paper focuses on voluntary MSAs, which from an individual’s perspective can be considered as a tool for financing additional out-of-pocket medical expenses, especially after retirement. The concept and specific characteristics of an MSA and a financial product combining the Medical Savings Account with insurance against catastrophic health care costs are presented here. Next, with the use of actuarial methods, a model is proposed in order to estimate the amount of initial MSA balance, which representsa single payment made to this account to cover future health care costs without additional contributions. In the analysis the discounted value of health care expenses of an MSA holder is estimated depending on expected health care expenses, assumed interest rate and mortality rates. The results of the conducted simulation analysis can be useful in practice, especially in the context of accumulation of savings to cover private medical expenses incurred by retirees, which if are funded on an ongoing basis can result in a significant burden for retirees’ household budgets.