Briefing Paper No. 26 April 4, 1996

Briefing Paper

The Establishment Strikes Back
Medical Savings Accounts and Adverse Selection

by Peter Ferrara

Peter Ferrara is general counsel for Americans for Tax Reform and an associate policy analyst at the Cato Institute.


Executive Summary

None of the proposed structural reforms of Medicare has come in for as much criticism as have medical savings accounts (MSAs), which are designed to return control over health care spending to the consumer, reduce costs, and avoid the rationing of care inevitable under either government-run health care systems or managed care.

As MSAs have become increasingly popular in Congress, opponents have tried to discredit the concept. The most significant criticism is that MSAs would appeal only to the healthy, leaving traditional Medicare to serve the sick. Such adverse selection would, critics conclude, result in large cost increases to the system.

However, recent studies purporting to show adverse selection have been seriously flawed. In fact, both actuarial studies and experience in the private sector show that MSAs will appeal to a wide cross section of the elderly, regardless of their health status. Despite recent attacks, MSAs remain the best hope for reforming the Medicare system.

Full Text of Briefing Paper No. 26 (HTML)

1996 The Cato Institute
Please send comments to webmaster