The arrival of MSAs
by Lexey Parker, M.D.
nder the current medical coverage system, an employer pays, say, $400 a month for health insurance coverage for an employee and family. That policy usually has a deductible, a co-pay, a list of what services are and are not covered, a list of doctors and hospitals the patient must choose from, an endless trail of paperwork and administrative manpower to shuffle that paper.
To make matters worse, in the constant struggle to keep costs down, the employer is frequently forced to change plans as often as every year or more. This leads to further confusion and dissatisfaction on the part of the employee and provides no incentive for the employee to make cost-effective choices. If an obscure third party is paying the bill and dictating how the employee should live his or her life, there is nothing to discourage that mother or father from showing up in the emergency room at 3 a.m. seeking treatment for a cold a child has had for four days. The costs of just those kinds of decisions are strangling the current health care system.
Under a Medical Savings Account (MSA) systema form of medical insurance that enables consumers to make sound and cost-effective decisions regarding the medical care they receivethat same $400 is allocated much differently. First, $120 of that amount is used to purchase a catastrophic policy with a $2,000 deductible. This assures that the employee will never be bankrupted by a medical illness. The remaining $280 is deposited into an MSA in the employees name. Each and every month, he or she gets another $280 deposited into an interest-bearing account.
The employee may withdraw any amount of funds available from this account to pay for all incidental medical expenses. When a child needs an immunization, the employee withdraws the $35. When the employee needs a checkup, he or she takes the dollars needed from the MSA. The employee determines what medical care is to be obtained, from what provider and at what time.
Instantly, employees have an incentive to spend health care dollars wisely. Why? Because at the end of the year, any money left over in the MSA account is the employees. It is rolled over to the next year, tax free. It continues to grow, tax free. In a very short time, a large sum of money will accumulate, more than enough to pay the $2,000 deductible in case of a catastrophic illness or accident. And enough to help pay for long term care in old age. There are even proposals to allow these funds to be used for college education, home down payments and retirement.
MSAs were passed with the congressional health-insurance bill last summer, allowing a test of the accounts. Overnight, the MSA has returned individual responsibility to the equation in health care expenditures. Employees are spending their own money, without complicated rules, restrictions and paperwork. The employer is out of the health care decision-making process. There is no more faceless, third-party payer to "pick up the tab."
Sounds like a great idea, but will such a radical concept work? The answer is yesit has been working for years. Ten years ago, Singapore mandated MSAs for all its workers. At the end of eight years, the average worker had $73,000 in his or her MSA account. Forbes, Inc. instituted MSAs in 1992 and, in the first two years, saw a drop in its healthcare costs of 35 percent. (See page 10 for a detailed case study.) Jersey City, New Jersey, began MSAs for 52 percent of its employees. In the second year, 95 percent of the employees signed up. The state of Idaho saw such advantages that it legislated the formation of MSAs last year, making the accounts exempt from state taxes.
The advantages of MSAs are obvious. Under conventional plans, employees often forego preventative care due to the out-of-pocket expense. With MSAs, an employee has first-dollar benefits encouraging him or her to seek services that might otherwise be ignored. The MSA stays with the employee, giving him or her a source of medical funding should the employee change jobs. The employee now has an incentive to shop for medical services as an active consumer, just like he or she shops for everything else, with a shrewd eye toward cost. And no one will suffer financial ruin due to medical expenses since any costs over the deductible and out-of-pocket expenses are picked up by the catastrophic policy.
Although the advantages are obvious, some insurance providers are having a hard time selling the savings accounts, according to the Wall Street Journal. "It has been a huge educational challenge," reported Bill Draznik, vice president of the Starmark unit of Trustmark Insurance. At the time of the interview, he had only sold about 120 plans. On the other hand, Golden Rule Insurance of Indianapolis has sold 26,000 plans to date. More than 40 health insurers have begun to offer some type of MSA plan to the self-employed and to companies with 50 or fewer workers, as restricted by legislation. In Nevada there are several decisive factors employers weigh when looking at MSAs, said Valerie Clark, vice president of Clark and Associates, an independant insurance broker. "Willingness to administer, number employees and current benefits are big issues," she said.
Official numbers on nationwide MSA participation will not be available until late August when the Internal Revenue Service is due to release enrollment tallies. Congress placed a cap on the number of MSA programs that initially could be created at 750,000 plans because of intense lobbying from insurance companies opposed to MSAs. MSAs sharply reduce administrative coststhe source of all the objections to MSAs by the managed care companies. Those companies stand to lose the 25 percent to 35 percent they have been taking off the top of healthcare insurance premiums. MSAs eliminate the entire profit margin of managed care companies and render them useless. Because of this, the healthcare industry was willing to concede every issue (portability, pre-existing clauses, fee caps) in the recent legislation in order to stop the implementation of Medical Savings Accounts. But the Republicans held tough and implemented them anyway, conceding to the 750,000 cap.
Are there any drawbacks to MSAs? Opponents of MSAs claim there will be a discriminatory shift of healthy workers into MSAs. But we already have just such a shift taking place, with healthy workers signing up for low-cost HMO plans, and sick workers relegated to high priced indemnity plans that often trap them in their current jobs even if they want to change. How does it benefit employers to have such a helpless, caged work force?
The most odious objection raised by the opposition is that the concept of MSAs is too complicated for the average worker to understand. Are they saying a single mother of two, who balances a weekly pay check to pay rent, utility, cable bills and all the unexpected costs that come up is too dumb to make informed choices about how her healthcare dollar is spent? Is the reason people are not saving for the future because they are too stupid to see the wisdom of such savings or because they simply dont have enough money to get by on as it is?
MSAs offer the consumer hope. They empower employees to make their own decisions, to take care of themselves, to plan for the future. MSAs take the responsibility of healthcare off the shoulders of the employer. And at the same time, MSAs save money for the employer, the employee and the system as a whole. u
Dr. Lexey Parker is an obstetrician/gynecologist in private practice in Reno and with Womens Healthcare of Reno. She is a delegate to the National Congressional Advisory Commission and an NPRI board member.
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