SAVE MEDICAL SAVINGS ACCOUNTS
Sep 13, 1999, Vol. 4, No. 48 • By ROBERT M. GOLDBERG
IF REPUBLICANS ARE SERIOUS about wanting to protect health care consumers, they should revive the campaign for medical savings accounts. Rather than joining the Democrats' push to let people sue their HMOs, Republicans should insist that MSAs be part of any Patients' Bill of Rights.
The MSA concept is simple: Allow Americans to pay for health insurance and out-of-pocket medical expenses out of tax-free accounts. Let individuals keep what's left in their accounts tax free (to be withdrawn only under certain conditions), giving them an incentive to spend carefully and so helping to contain the price of direct services. Design insurance to cover major medical expenses, protecting people from medical catastrophes and the high expenses of old age, but leaving premiums far lower than for comprehensive coverage; then let employers, or individuals, deposit the premium savings in their MSAs, to cover routine expenditures. The price of both insurance and direct medical services would drop -- and doctors and consumers would gain increased control over medical decisions. It's an idea that could truly transform health care.
Back in 1995 Republicans introduced a simple plan intended to make MSAs widely available. Democrats, however, led by Ted Kennedy, claimed that the wealthy would use the accounts as tax shelters, leaving only the sick and poor in managed care and lower-deductible insurance pools. Although a RAND study showed that in fact MSAs would save money for low-income people with serious illnesses, the opponents succeeded in confining MSAs to a pilot program, available only to companies with 50 or fewer employees. Worse, they loaded it with other restrictions. For example, an employee and his company cannot contribute to his MSA in the same year. The legislation enacted in 1996 deliberately made the program hard to market and hard to administer, a bookkeeping nightmare.
Most harmful were a cap on the number of MSAs that could be created nationwide (750,000) and a time limit (no new MSAs could be opened after September 1, 2000). As a result, only 57,000 people have set up MSAs. Says Allen Wishner, CEO of Flexible Benefit Service Corporation of Chicago, one of the nation's largest marketers of health insurance to small business, "Compare the response of people to the Roth IRA which has fewer advantages for people than the MSA. First, what bank is going to invest in the software and personnel to run MSA accounts if they are limited to only 750,000 and to four years? Second, why should insurance agents spend time on something so short term? Third, because they were an experiment, the press never picked up on MSAs as anything worth writing about."
And that's not all. Under the MSA program as enacted, the sum a person or his employer may deposit in his tax-free account in any given year is perversely capped at less than his insurance deductible. As a result, the account may not cover all of the person's out-of-pocket expenses. (The cap is 65 percent of the deductible for an individual, 75 percent for a family.) Then there is the issue of keeping track of deposits and withdrawals and enforcing their proper use. It's hard enough to administer one MSA, let alone dozens as a small business must. Not surprisingly, it is difficult to find a bank in my home state of New Jersey willing to handle an MSA account.
The Democrats intentionally structured MSAs so as to discourage all but the most tenacious from pursuing them. Wishner notes, "You'd be amazed at how many employers and self-employed people had never heard about MSAs or heard about them from me for the first time." Indeed, most of his MSA customers turned to him in desperation: They were small business owners who had discontinued their workers' health insurance coverage after years of double-digit increases in premiums and futile efforts to keep costs down through HMOs.
That's where there is actually good news. Despite the thicket of limitations thrown at MSAs, they are performing as promised: providing low-cost health care coverage to people many of whom would otherwise be uninsured. Wishner, for example, recently signed up a small printing company that had been on the verge of canceling its workers' insurance. The company's new MSA program cuts premiums in half. Most of the employees are modestly paid workers. Wishner says, "Everyone I switched over wound up saving money, spending more money on actual health care expenses and less on premiums, and wound up becoming a more careful consumer." In a review of the MSA program through 1998, the General Accounting Office found that 37 percent of participants had been previously uninsured.
The kinds of patient protections that Democrats -- and some Republicans -- are proposing (more lawsuits, more mandated health benefits) will probably make health insurance less affordable for small business, leading more companies to drop coverage. Hence, MSAs, if truly available, could become an important way for consumers to obtain health insurance. Whatever else a Patients' Bill of Rights contains, it must make MSAs permanent. It must make them available to everyone. Employers and employees must be able to contribute to MSAs at the same time. And people must be permitted to deposit all the money they'll need to cover their out-of-pocket expenses, up to the full amount of their deductible.
These changes in the law would pull a lot of uninsured people off the sidelines. Billions of dollars now locked up in insurance premiums would flow into investment accounts earmarked for health care services, and the play of money and incentives throughout the health care system would be realigned. Consumers would have more control over decisions about their own health care. Whatever Republicans do in the name of patient protection or health care coverage this session will pale in comparison to making MSAs available for everybody. Nothing else they have proposed comes close to creating a real market for health care in America.
Robert M. Goldberg is senior research fellow at the Ethics and Public Policy Center in Washington, D.C.