Medical and Health Savings Accounts

High-deductible policies have lower premiums than low-deductible plans.
High-deductible policies have lower premiums than low-deductible plans.

If you are one of the lucky Americans who has health insurance, you are also most likely one of the many who are confused by your health insurance options. Do you know what a Medical Savings Account (MSA) is? Did you know it's different from a Health Savings Account (HSA)? And what does either of them have to do with something called consumer-driven health care? You're about to find out.

First we'll discuss the idea of consumer-driven health care. This type of health care involves patients who have a high-deductible health insurance policy and either an HSA or an MSA. The idea behind it is that you pay for your own routine health care expenses with funds you've accrued in your HSA or MSA. Meanwhile, the high-deductible health insurance policy is used as more of a safety net -- it protects you from any catastrophic medical expenses. These types of insurance policies tend to have a dramatically lower monthly premium than low-deductible health insurance plans do.

Why is this a good idea? There are arguments for both sides, of course. Supporters have a few main arguments:

  • Consumer-driven health care will cost you less over the long run because of the lower premiums and the tax breaks you get for having an HSA or MSA. This could be true if you're extremely healthy or if you're extremely sick. If you're healthy, you don't have many health expenses, you're covered in case of catastrophe, you have low monthly payments, and you can build up the money in a tax-friendly HSA or MSA. If you're extremely sick, you'll probably have high monthly expenses for medications and doctor's visits. With an HSA or MSA, you would quickly meet your deductible, and the insurance would cover expenses for the remainder of the year.
  • If people can determine how and where their health care money is spent, it would booster competition in the health care system, which, in theory, would lower health care costs.
  • HSAs help deter abuse of benefits. If you're paying for a doctor's visit instead of having a $25 copay, you might make fewer unnecessary doctor's appointments.

The arguments against this type of health care include the fact that health care isn't like other markets, in which services are clear and prices are known. If you have an HSA, you could just as easily choose to forgo a needed medical procedure because of the costs. In addition, many consumers are overwhelmed by the amount of health care information. They question the quality of the information needed to make the best decision for their health. So many critics argue that lower-income, less-educated consumers are not as likely to benefit from this kind of plan.

Next, we'll discuss these savings accounts.