Can Health Savings Accounts Reduce Health Spending? Evidence from China

Health care costs are high and continue to rise in most major economies, and the health savings account (HSA) is often viewed as an appealing way to contain health care costs because it can potentially solve the moral hazard spending caused by traditional health insurance. This study uses data from the China Household Finance Survey (CHFS) to empirically examine the effectiveness of HSAs in containing medical expenses and reducing moral hazard. The findings show that HSAs that restrict the use of funds may lead enrollees to discount the value and thus spend more on health care. In addition, the positive effect of HSAs on medical expenses is larger for the relatively healthier group, which may suggest that moral hazard exists regarding the use of HSA funds. The empirical estimates of the HSA effect on medical expenses are robust when a set of covariates are controlled, and HSA balances are instrumented using housing savings account balances.