Cato Policy Analysis No. 228 May 25, 1995

Policy Analysis

Medical Savings Accounts:
Answering the Critics

by Michael Tanner

Michael Tanner is director of health and welfare studies at the Cato Institute.


Executive Summary

As the movement for medical savings accounts (MSAs) picks up speed in Congress, critics of consumer-based health care reform are mounting a counterattack. An examination of the evidence shows that their criticisms of MSAs are just plain wrong. For example:

* Critics claim health care has become so complex that consumers are no longer capable of making cost-conscious decisions about their treatment. However, numerous scientific studies show that health care consumers can and do make cost- conscious decisions when given a financial incentive to do so.

* Critics say consumers will forgo necessary or preventive care to save money in their medical savings accounts, but studies show that MSAs do not deter preventive care. Rather, savings result from reduced use of optional services and cost-based selection among competing providers.

* According to critics, MSAs would attract the healthy, leaving the sick with conventional insurance. If so, that "adverse selection" would drive up the cost of traditional insurance. However, companies currently using MSA-style health plans have not had significant problems with adverse selection.

* Critics claim MSAs are regressive, providing benefits primarily to the wealthy. Our current system of providing a tax break only for employer-provided insurance is far more regressive.

MSAs represent a significant step in solving the problems facing our health care system. Supporters of MSAs should not be distracted by flawed and misplaced criticisms.

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1995 The Cato Institute
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