Economic Study

Study Finds Workers Benefit from MSAs

Most workers would end up saving a substantial portion of deposits made to their Medical Savings Accounts, according to a new study from the National Bureau of Economic Research (NBER). MSAs are similar to Individual Retirement Accounts, with deposits made by employers or the self-employed accumulating until withdrawn -- without tax penalties -- for medical expenses or after retirement.

Three economists studied the healthcare spending of 300,000 employees of Fortune 500 companies over a three-year period, starting in 1989. They assumed that employers would pay the premium on catastrophic health insurance with maximum annual deductibles of $2,250 for individuals and $4,000 for families -- and make deposits of up to three-fourths of the deductible in an MSA each year.

Advocates of MSAs suggest that consumers will become more frugal consumers of health services, if they are allowed to keep the benefit of any savings. But the NBER study assumed that the workers would not alter their health care spending patterns. Even so, the study found that if the workers had MSAs:

• By retirement, 90 percent of the workers would have saved more than $25,000 in their MSAs.

• More than half would have above $50,000.

• Only 5 percent of the workers would have saved less than 20 percent of their employers' contributions over their lifetimes.

The researchers found that workers who are sick in one year tend to have higher-than-average medical expenses in the next few years. However, even those workers would be better off, because when medical costs exceeded the deductible they would pay nothing.

The new Kassebaum-Kennedy health insurance reform law allows a four-year experiment with MSAs. Up to 750,000 people who are self-employed or work for small companies will get an MSA option.

Source: "Perspective: Real Healthcare Reform," Investor's Business Daily, October 16, 1996.