Medical Savings Accounts: Microsimulation Results from a Model with Adverse Selection

Abstract

Using the MEDSIM microsimulation model, developed by researchers at the Agency for Health Care Policy and Research, we explore the possible consequences of making tax-preferred medical savings accounts (MSAs) combined with catastrophic health plans (CHPs) available to the entire employment-related health insurance market. We examine the equilibrium effects of MSA/CHPs on health care and non-health care expenditures, tax revenues, insurance premiums, and exposure to risk. If MSA/CHPs are offered alongside comprehensive plans, biased enrollment can lead to premium spirals that drive out comprehensive coverage. We present a benefit-cost analysis, showing that widespread adoption of MSA/CHPs would yield a small but positive net benefit on average. However, our estimates raise concerns about equity, insofar as those who stand to lose the most tend to be older, poorer, in worse health, and in families with infant children.

JEL Classification: I18, H22