MEDICAL SAVINGS ACCOUNTS

This position paper examines medical savings accounts (MSAs) as a supp lemental mechanism for financing health care services, Although federa l legislation to encourage MSAs did not pass in 1995 and is not likely to pass in 1996, MSAs will continue to be seriously considered by pub lic policymakers. Individual retirement accounts accumulate funds for retirement; MSAs could be used to accumulate funds for health care exp enditures. Changes in the federal tax code would be required to permit tax-deductible contributions and tax-free earnings to individual MSAs . To be withdrawn without penalty, funds from an MSA could only be use d to pay for approved medical or health insurance expenses. Each perso n would own and control his or her account, regardless of changes in e mployment. Coupled with high-deductible health insurance, MSAs could e mpower cost-conscious patients in health care decision making, increas ing competitive pressure to reduce health care costs, Administrative c osts and paperwork associated with health insurance might also be redu ced, and some people who currently do not have health insurance might be able to obtain some financial protection. Medical savings accounts may not help unemployed persons or low- and middle-income persons who cannot afford to contribute to such accounts. These accounts may resul t in reduced health insurance protection and greater out-of-pocket exp enses for those most in need of health care, Problems of adverse risk selection could arise if healthy persons choose insurance options invo lving MSAs; this choice would cause premiums to increase for persons w ho desire traditional health insurance.