Health care costs in America are skyrocketing and one answer has been to reform the way in which health care is financed and delivered in the United States. One such reform is the Medical Savings Account. The purpose of this project is to examine Medical Savings Accounts. To this end, the paper discusses the history, concept, and current status of Medical Savings Accounts. This is followed by a delineation of both the advantages and disadvantages of these accounts. Medical Savings Accounts are then compared with high-risk pools and purchasing cooperatives. Findings are then summarized and recommendations for policy on MSAs are formulated.
History, Concept and Current Status of Medical Savings Accounts
Concept. The National Center for Policy Analysis (2000) characterizes the concept of the Medical Savings Account as that of allowing employees of small businesses to set up a tax-free interest-bearing medical savings accounts. Under traditional health insurance, people make monthly premium payments to an insurer such as Blue Cross, and the insurer pays medical bills as they are incurred. Under the new system, people could confine health insurance to catastrophic coverage (say, expenses above $3,000), reduce their monthly insurance premium payments and make deposits to a Medical Savings Account instead. Insurance would pay for expensive treatments that occur infrequently, while individuals would use their MSA funds to pay small bills covering routine services.
History and Current Status. According to World-Wide Health Insurance Solutions, the history of the Medical Savings Account begins in August of 1996 when the President signed the Health Insurance Portability and Accountability Act into law. A provision of this act was to set up a MSA pilot project allowing for contributions to and funds in an MSA to be excluded from Federal income tax. The law limits the total number of tax-advantaged MSA account holders to 750,000 for th...