Medical savings accounts: microsimulation results from a model with adverse selection

Abstract

This paper examines medical savings accounts combined with high-deductible catastrophic health plans (MSA/CHPs), exploring the possible consequences of making tax preferred MSA/CHPs available to the entire employment-related health insurance market. The paper uses microsimulation methods to 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 MSA/CHP enrollment can lead to premium spirals that drive out comprehensive coverage. Our estimates also raise concerns about equity, insofar as those who stand to lose the most tend to be poorer and in families with infant children.