Policy Analysis No. 220

More than a Theory: Medical Savings Accounts at Work

By Peter J. Ferrara
March 14, 1995

Executive Summary

Economists from across the political spectrum understand that one of the major factors driving health care costs is our third-party payment system that insulates consumers from the cost of their health care decisions. Medical savings accounts (MSAs) are the one health care reform proposal designed precisely to counter that fundamental cost-control problem. They restore direct incentives to consumers to control costs and stimulate true market cost-control competition.

MSAs are far more than a theory. Despite the heavy discrimination against them in the current income tax code, employers and workers across the country have already begun establishing and using MSAs in place of traditional third-party insurance. Among the companies currently using MSA-type insurance plans are Golden Rule Insurance Company, Dominion Resources, Forbes magazine, Quaker Oats, Indresco Corporation, and dozens of small businesses across the country. In all those companies, MSAs have proven highly effective at controlling costs, as well as highly popular among workers.

The experience of private companies currently using MSA-type approaches to reducing health care costs proves that MSAs can control rapidly rising health costs, while preserving both quality and patient choice. By enacting federal MSA legislation, Congress would establish a fully comprehensive cost-control system that would restrain costs without imposing rationing by either the government or insurance bureaucracies.

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Peter J. Ferrara is a senior fellow of the National Center for Policy Analysis.