Health Care Costs and Financing

Tax-preferred medical savings accounts combined with high-deductible catastrophic health plans may be unfair to some

Debate continues about the merits of giving tax preferences to nonelderly individuals and families that establish medical savings accounts (MSAs) in conjunction with high-deductible catastrophic health plans (CHPs). The United States has embarked on a reform path that will enable a limited number of families to take advantage of liberalized tax preferences for MSA/CHPs. Reform proponents argue that individuals and families currently covered by comprehensive employment-related insurance will use fewer medical services and become more price sensitive if they enroll in MSA/CHPs. But the authors of this study agree with critics of reform, who charge that self-selection by people at low risk of poor health into MSA/CHPs may leave only high-risk individuals in comprehensive plans, possibly leading to premium spirals that could cause the demise of such plans.

Researchers in the Center for Cost and Financing Studies, Agency for Health Care Policy and Research, used microsimulation methods to examine the equilibrium effects of MSA/CHPs on health care and nonhealth care expenditures, tax revenues, insurance premiums, and exposure to risk. Daniel Zabinski, Ph.D., Thomas M. Selden, Ph.D., John F. Moeller, Ph.D., and Jessica S. Banthin, Ph.D., found that simulation of 100 percent MSA/CHP enrollment by families with employment-related coverage suggests that the aggregate effect of reform may be a small positive change in net benefits.

This average gain, however, obscures substantial variation across families in the gains and losses associated with MSA/CHP reforms. The simulations suggest, for example, that the families losing the most from reform tend to be poorer. Also, reform leaves families at high risk for medical expenses; they will choose between paying higher premiums for their comprehensive plans or being exposed to higher financial risk if they enroll in the MSA/CHP. In both cases, they are worse off compared with their pre-reform status.

See "Medical savings accounts: Microsimulation results from a model with adverse selection," by Drs. Zabinski, Selden, Moeller, and Banthin, in the Journal of Health Economics 18, pp. 195-218, 1999. Reprints (AHCPR Publication No. 99-R047) are available from the AHCPR Publications Clearinghouse.

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