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Are Assets in Medical Savings Accounts Discounted? Evidence from a Natural Experiment in China

Maoyong Fan (), Zhen Lei and Guoen Liu
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Zhen Lei: Department of Energy and Mineral Engineering, Penn State University
Guoen Liu: Guanghua School of Management at Peking University

No 201012, Working Papers from Ball State University, Department of Economics

Abstract: In China, Medical Savings Accounts (MSAs) are a major tool financing health care consumption in urban areas. Whether MSAs control medical expenditures and encourage saving is based on an assumption that enrollees treat the MSA money the same as their pocket money. This assumption has never been tested. Given the mandatory and restrictive nature of MSAs in China, we hypothesize that enrollees may discount their MSAs and spend them prematurely. To test whether assets in MSAs are discounted, we take advantage of a policy change as a natural experiment in city of Zhenjiang. The policy change affected different age cohorts differently in terms of financial contributions to MSAs. Empirical results show that a reduction in MSAs caused enrollees to reduce their annual medical expenditures by more than the amount of the MSA reduction. The effect was largest for those with intermediate medical expenditures, who were more likely to exhaust their MSAs and pay out-of-pocket expenses. The results are consistent with the hypothesis that enrollees discount their MSAs. The smaller their MSAs are, the higher the chance of paying medical expenditures out-of-pocket (the "true" price): when forced to pay the "true" price of medical services, they consume less.

Keywords: Medical Savings Account; Natural Experiment; Medical Expenditures; Health (search for similar items in EconPapers)
JEL-codes: I11 I18 O12 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2010-12, Revised 2010-12
New Economics Papers: this item is included in nep-hea, nep-ias and nep-tra
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http://econfac.bsu.edu/research/workingpapers/bsuecwp201012fan.pdf First version, November 2010 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bsu:wpaper:201012

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