Medical Savings Accounts: Windfalls for the Healthy, Wealthy & Wise

Abstract

This article analyzes the Medical Savings Account (MSA) program, and critiques its impact on the retirement and health care systems. The MSA program is an experimental health care program created by The Health Insurance Portability and Accountability Act of 1996. The program allows a limited number of small employers and self-employed individuals to establish MSAs during an experimental period. MSA funds may be used for medical expenses, or carried forward and accumulated tax-free as retirement savings. The underlying purpose of the MSA program is to reduce the cost of medical care by providing consumers greater incentives to be sensitive to health care costs than traditional insurance provides. Based upon the outcome of the MSA experiment, in 2000 Congress will decide whether to abolish or expand the program. On its face the MSA program appears to be an efficacious method of tackling both the overwhelming problem of health care financing, and the increasing need for retirement income security. However, this article demonstrates that the MSA program is a questionable response to these concerns because its underlying policy runs counter to existing retirement income and health care goals. Furthermore, the article shows that the MSA program raises serious issues of fairness as it benefits only relatively few, namely, the healthiest, wealthiest, and most informed members in society. The article acknowledges that the program's failure to deliver health benefits and savings opportunities to all Americans would not render it void of value, or its cost unjustifiable, if it were successful in curbing rising health care costs. However, using health care consumption trends, a comparative analysis, and MSA participation rates the article determines that the MSA program is unlikely to significantly impact medical care costs.