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

Listed author(s):
  • Maoyong Fan


    (Department of Economics, Ball State University)

  • Zhen Lei

    (Department of Energy and Mineral Engineering, Penn State University)

  • Guoen Liu

    (Guanghua School of Management at Peking University)

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.

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File Function: First version, November 2010
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Paper provided by Ball State University, Department of Economics in its series Working Papers with number 201012.

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Length: 43 pages
Date of creation: Dec 2010
Date of revision: Dec 2010
Handle: RePEc:bsu:wpaper:201012
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