Is there moral hazard in medical savings accounts? Evidence from Singapore

Abstract

Medical savings accounts (MSAs) are designed to provide tax incentives for individuals to save for future healthcare needs, with the goal of reducing overall health expenditures. This paper first examines how individuals adjust their healthcare spending when receiving additional transfers to their MSAs. Using a comprehensive monthly longitudinal survey and a staggered difference-in-differences design, I find that individuals increase their monthly medical expenditure by 13 %, with the marginal propensity to consume from MSAs estimated at 0.6. Second, I analyze the impact of a 25 % price reduction for services at General Practitioner (GP) Clinics and Specialist Outpatient Clinics (SOCs) on healthcare utilization. The results show that MSA holders increase their medication spending by 10.7 % at the extensive margin in response to the price reduction. These findings suggest that both MSA top-ups and price reductions lead to increased healthcare utilization, indicating that MSA holders may respond to these financial incentives by consuming more healthcare in the present, prioritizing immediate healthcare needs over future savings. While this behavior may reflect moral hazard within MSAs, it may also point to unmet healthcare needs that are being addressed through increased liquidity.