In the 1970s and 80s, many economists attributed rising health costs to moral hazard induced by health insurance. To those whom support this statement, a system called Medical Savings Accounts (MSAs) was appealing.
The MSAs is a system where citizens are required to routinely save a proportion of their income for meeting health care costs. It is a mixture of pre-payment funding and point-of service payments (although money is put into savings account, the accounts are personalized and there is no pooling of funds). The idea is based on self-reliance and individual accountability, and is expected to overcome issues such as moral hazard, service choice, administrative cost and third-party insurance payment of health insurance markets.
Positive theoretical features of MSAs are:
- Reduce moral hazard: because individuals are made to purchase routine health care at full price, there will be no incentive to participate in risky behavior and thus over consume services. Also, increased consumer awareness of the cost will deter unnecessary consumption of care.
- Increase choice: (depending on the initial circumstance) it will give patients greater choice of providers and incentives to shop around to obtain lower prices, which will reduce overall costs.
- Reduce administrative costs: because patients pay directly for the frequent low-cost services, there is less billing or checking by the insurer.
- Increase insurance efficiency: in theory, insurance is most efficient for low-probability high-cost events. By limiting insurance claims to catastrophic episodes (MSAs are usually combined with a catastrophic "back-up" plan), it will make the insurance more efficient than the traditional first-dollar cover insurance.
- Increase financial stability: it enables pre-funding (accumulation of resources in advance to pay for future health care needs) and inter-temporal redistribution (spread the risk of ill health over a lifetime from periods of health to illness and periods of wealth to poverty).
Countries such as Singapore, US, China and South Africa have tried to introduced this system. So far from these experiences, it seems hard to conclude whether MSAs reduce moral hazard and health care expenditure. For example, in Singapore where the introduction of MSAs have often been regarded as relatively successful, health care expenditure has continued to grow because it induced quality competition rather than price competition. Also, evidence suggest that MSAs may bring equity issues especially when you have choice between MSAs and traditional first-dollar cover plans.
The usefulness of MSAs might somewhat depend on the context. A rather positive reputation of Singapore in introducing MSAs may have been influenced by their positive features such as rapid economic growth, high savings rate, young population, low % GDP spending on health care. Based on these experiences, some insist that a thriving economy and high employment rates are both prerequisites to the successful implementation of MSAs.
Dixon, A. (2002). Are medical savings accounts a viable option for funding health care? Croatian Medical Journal, 43(4), 408–416.
Wouters, O. J., Cylus, J., Yang, W., Thomson, S., & Mckee, M. (2018). Medical savings accounts: assessing their impact on efficiency, equity and financial protection in health care. Health Economics, Policy and Law, 11, 321–335.