Objective. To simulate whether allowing small businesses to offer employer-
funded medical savings accounts (MSAs) would change the amount or type of i
nsurance coverage.
Study Setting. Economic policy evaluation using a national probability samp
le of nonelderly non-institutionalized Americans from the 1993 Current Popu
lation Survey (CPS).
Study Design. We used a behavioral simulation model to predict the effect o
f MSAs on the insurance choices of employees of small businesses (and their
families). The model predicts spending by each family in a FFS plan, an HM
O plan, an MSA, and no insurance. These predictions allow us to compute com
munity-rated premiums for each plan, but with firm-specific load fees. With
in each firm, employees then evaluate each option, and the firm decides whe
ther to offer insurance-and what type-based on these evaluations. If firms
offer insurance, we consider two scenarios: (1) all workers elect coverage;
and (2) workers can decline the coverage in return for a wage increase.
Principal Findings. In the long run, under simulated conditions, tax-advant
aged MSAs could attract 56 percent of all employees offered a plan by small
businesses. However, the fraction of small-business employees offered insu
rance increases only from 41 percent to 43 percent when MSAs become an opti
on. Many employees now signing up for a FFS plan would switch to MSAs if th
ey were universally available.
Conclusions. Our simulations suggest that MSAs will provide a limited impet
us to businesses that do not currently cover insurance. However, MSAs could
be desirable to workers in firms that already offer HMOs or standard FFS p
lans. As a result, expanding MSA availability could make it a major form of
insurance for covered workers in small businesses. Overall welfare would i
ncrease slightly.