Health Expenditure Persistence and the Feasibility of Medical Savings Accounts

Abstract

Medical savings accounts (MSAs) have recently received considerable policy attention as an alternative approach to improving the efficiency of individual spending decisions for health care. The Health Insurance Portability and Responsibility Act includes specific tax incentives to support the use of MSAs on a limited basis beginning in 1997. We review the implications of such tax incentives for insurance and health care purchasing decisions. We then focus on a crucial equity consideration: the extent to which the feasibility of MSAs is limited by the persistence of medical expenditures over an individual's working life. We conclude that persistence does not present an overriding impediment to MSAs. Finally, we consider other key behavioral issues that will be important in evaluating such plans.