Simulating the Impact of Medical Savings Accounts on Small Business

Published in: Health Services Research, v. 35, no. 1, pt. 1, Apr. 2000, p. 53-75

Posted on RAND.org on January 01, 2000

by Dana P. Goldman, Joan L. Buchanan, Emmett B. Keeler

Read More

Access further information on this document at www.pubmedcentral.nih.gov

This article was published outside of RAND. The full text of the article can be found at the link above.

OBJECTIVE: To simulate whether allowing small businesses to offer employer-funded medical savings accounts (MSAs) would change the amount or type of insurance coverage. STUDY SETTING: Economic policy evaluation using a national probability sample of nonelderly non-institutionalized Americans from the 1993 Current Population Survey (CPS). STUDY DESIGN: We used a behavioral simulation model to predict the effect of MSAs on the insurance choices of employees of small businesses (and their families). The model predicts spending by each family in a FFS plan, an HMO plan, an MSA, and no insurance. These predictions allow us to compute community-rated premiums for each plan, but with firm-specific load fees. Within each firm, employees then evaluate each option, and the firm decides whether to offer insurance-and what type-based on these evaluations. If firms offer insurance, we consider two scenarios: (1) all workers elect coverage; and (2) workers can decline the coverage in return for a wage increase. PRINCIPAL FINDINGS: In the long run, under simulated conditions, tax-advantaged MSAs could attract 56 percent of all employees offered a plan by small businesses. However, the fraction of small-business employees offered insurance increases only from 41 percent to 43 percent when MSAs become an option. Many employees now signing up for a FFS plan would switch to MSAs if they were universally available. CONCLUSIONS: Our simulations suggest that MSAs will provide a limited impetus to businesses that do not currently cover insurance. However, MSAs could be desirable to workers in firms that already offer HMOs or standard FFS plans. As a result, expanding MSA availability could make it a major form of insurance for covered workers in small businesses. Overall welfare would increase slightly.

This report is part of the RAND Corporation external publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.