Discounting of Medical Savings Accounts

American Journal of Health Economics, Forthcoming

42 Pages Posted: 3 Apr 2015

See all articles by Maoyong Fan

Maoyong Fan

Ball State University - Department of Economics

Zhen Lei

Pennsylvania State University

Gordon Guoen Liu

Peking University - Guanghua School of Management

Date Written: April 1, 2015

Abstract

Medical Savings Accounts (MSAs), personal medical accounts that are restricted for health care consumption only, have been widely adopted to cushion individuals against the financial risk due to illness and to address the potential moral hazard problem in the health insurance system. This paper studies the effects of MSAs on health care expenditures and suggests that there may be some inherent tension between the two purposes of MSAs: account holders are likely to discount MSA funds because of their restricted use, which renders MSAs to be less effective in controlling health care costs. We exploit a quasi-natural experiment in China that exogenously reduced MSA funds for enrollees in certain age cohorts. We find that this reduction led to a large and statistically significant decrease in health care expenditures that is unlikely due to an income effect. The effect was driven by enrollees who were likely to exhaust MSA funds and enter the deductible phase in which they paid out-of-pocket.

Keywords: Discounting, Medical Savings Accounts, Natural Experiment, Health Care, Restricted Use, Difference-in-Differences

JEL Classification: I11; I18; D03

Suggested Citation

Fan, Maoyong and Lei, Zhen and Liu, Gordon Guoen, Discounting of Medical Savings Accounts (April 1, 2015). American Journal of Health Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2588885

Maoyong Fan (Contact Author)

Ball State University - Department of Economics ( email )

Whitinger Business Building, room 201
2000 W. University Ave.
Muncie, IN 47306-0340
United States
765-285-5741 (Phone)

HOME PAGE: http://https://sites.google.com/site/maoyongfan/home

Zhen Lei

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

Gordon Guoen Liu

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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