Medical Savings Accounts Good for the Poor; Good for the Sick

Commentary by John C Goodman

Medical Savings Accounts (MSAs) are designed to give individuals and their doctors more control over health care spending. Instead of a low-deductible health insurance policy, legislation before Congress would let employees and their employers choose high deductible insurance and put the premium savings in a tax free personal account to pay small medical bills. Employees could keep any money in the MSA at the end of the year, or roll it over to pay future medical expenses.

Until recently, MSAs received strong bipartisan support from Republicans and Democrats, conservatives and liberals. For example, two years ago MSAs were included in Dick Gephart's (D-MO) version of Clinton health care reform, and only one member of the Democrat-controlled House Ways and Means Committee voted against them. MSAs were unanimously endorsed by the Senate Labor Committee in 1994 under the leadership of Senator Edward Kennedy (D-MA) and in 1995 under Nancy Kassebaum (R-KS).

And in last year's most underreported event, Congress actually passed MSAs for the general population and for the elderly under Medicare. Although MSAs generated relatively little controversy then, they were part of budget bills vetoed by President Clinton.

So when the House of Representatives added MSAs to the Kassebaum-Kennedy health insurance portability bill this year, you would have expected easy sailing. That's because MSAs contribute to the bill's overall goal of making sure that people don't lose health insurance coverage when they lose a job or change jobs, since people can use their MSA funds to pay insurance premiums when their not getting employer-provided insurance.

Senator Kennedy, however, has had an election-year change of heart. With help from the White House, he even persuaded Senate Democrats who are cosponsors of MSA legislation to vote against them on a procedural vote. Now, he is claiming that MSAs are a poison pill destined to kill portability.

The reason? Kennedy claims that MSAs will only benefit the rich and the healthy and will be bad for the poor and the sick. Yet a new study by the Rand Corporation debunks these claims. Rand researchers found that MSAs will appeal to the sick as well as the healthy (57 percent of the population, overall) and that lower-income employees will be even more likely than higher-income ones to choose the most common employer MSA plan if given a chance. These findings are consistent with common sense.

Rich people, after all, can afford to see any doctor any time. But employers are forcing low-and moderate-income families to choose between two unattractive alternatives. Under a high deductible plan, a family may have to choose between paying a doctor's fee out of pocket and putting food on the table. Under an HMO plan, the family may be forced to see a doctor not of their choosing and may lack the personal resources to see an out-of-plan physician.

MSAs provide a third alternative. By putting cash up front in an account the family controls, MSAs empower people and allow them to make their own choices in the medical marketplace. And, as Rand points out, MSA plans are good for people who are really sick because they almost always have less out-of-pocket exposure than the traditional insurance.

Rand's conclusions also are backed up by actual experience. Singapore instituted a mandatory MSA system more than a decade ago, primarily to insure that moderate-income families would have funds to purchase health care. The results? Based on population health indicators, access to new technology and control of cost, the Singapore system is outperforming the health care system of other Asian nations.

South Africa has allowed tax free MSA plans to compete on a level playing field with HMOs and traditional insurance for the past several years. Insurers there report that Senator Kennedy's predictions are not born out in that country either.

In the United States, MSA deposits are now taxed (something the legislation would correct). Even so, several thousand employers now have MSA plans and none have reported adverse selection problems of the sort Kennedy warns us of. A study of employer MSA plans in Ohio confirms there is no such problem.

Eighteen states have already created tax free MSAs under their state income tax laws. It's time for Congress to put politics aside and do what's good for the country. MSAs are good. So is insurance portability. But if we have to choose, MSAs are better. Only one percent of the population is unable to buy health insurance because of a preexisting condition. A majority of people will benefit from MSAs.