How does undervaluation in medical savings accounts (MSAs) affect healthcare utilization? Evidence from administrative data in China

Abstract

This study examines how the undervaluation of funds in Medical Savings Accounts (MSAs) influences healthcare utilization in China. Given that MSA funds are restricted to healthcare expenses, individuals may undervalue these funds relative to cash, leading to potential overuse of health care. Through an event study approach using administrative data, we find significant reductions in healthcare utilization after MSA balances are depleted—outpatient care expenses drop by 49 percent, and drugstore purchases decrease by 41 percent. These effects persist across socioeconomic groups, indicating that liquidity constraints are not a major factor. Our back-of-the-envelope calculations suggest that insured individuals undervalue MSA funds by 40–70 %. This research sheds light on the behavioral impacts of MSAs and the broader implications of perceived price distortions in health insurance.