What's at Stake for PatientsCommentary by John C Goodman
January 01, 1996
One of the most exciting and popular health care reforms these days is Medical Savings Accounts (MSAs). Legislation before Congress would allow employees and their employers to choose high deductible insurance and put the premium savings aside tax free to pay small medical bills. Employees would get to keep any money left in their personal MSA at the end of every year or roll it over to pay future medical expenses.
Some 2,000 employers have now adopted some version of a MSA plan. But employer deposits to MSAs are subject to federal income and payroll taxes, unlike employer-paid health-insurance premiums.
Senator Edward Kennedy (D-MA) opposes Medical Savings Account legislation that would permit tax-free deposits because he claims MSAs would harm the sick and the poor. Kennedy wants a pilot program that can be studied before making the MSA option available to all American workers. However, MSAs have been around long enough to make further study pointless.
Do MSAs work? Foreign experience says yes
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 costs 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.
Do MSAs work? US experience says yes
Employers who have MSA plans have reported none of the problems Kennedy warns us about. Economists at Cleveland State University studied MSA plans in Ohio and found there were no such problems. Furthermore, they discovered employees with MSA plans had lower out-of-pocket costs than under traditional health insurance- about $217 less for individuals and $1,355 less for families. Employers saved too, about 12 percent per year.
MSAs only for the healthy and the wealthy? Rand says no
Researchers at the Rand Corporation conclude that MSAs would be attractive to those who expect to face high health care costs. That's because potential out-of-pocket expenses under traditional health insurance, which requires deductibles plus co-payments, are higher than under MSA plans.
According to Rand, employees choosing employer-funded MSA plans would have an average income of $29,000, only slightly higher than those remaining in fee-for-service plans ($28,000) and well below the income of those choosing an HMO ($43,000).
MSAs good for minorities? The Urban Institute says yes
In a separate analysis, the Urban Institute estimates that about 80 percent of non-elderly Americans would gain by switching to an MSA plan. The proportion of blacks who would benefit (83.9) is even higher than that of whites (79.2 percent). Although the sampling of Hispanics is too small to be statistically significant, the percent of Hispanics who would gain from MSAs (91.2 percent) is also higher than that of whites.
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.