Many people believe that Medical Savings Accounts (MSAs) and managed care are mutually exclusive. But employers around the country are now combining Medical Savings Accounts and managed care in efforts to make medicine cost-effective.

Whether or not they have MSAs, today most employers and their insurance companies negotiate prices with doctors and hospitals and explore other ways to obtain quality care at a lower cost. Employees often regard the arrangements as burdensome, since their preferred doctor may not be in their employer's network. With MSAs, however, employees have more financial self-interest in managed care arrangements.

In 1994, the employees of the National Center for Policy Analysis had a conventional fee-for-service health plan with a $500 deductible and a 20 percent copayment. Under this policy, an employee was at risk for up to $1,500 out of pocket. If three members of the same family all became seriously ill, the family was at risk for $4,500 in medical bills.

In 1995, the NCPAadopted an MSA plan that limits the exposure of the employees and at the same time gives them more control over their health care dollars. At no extra cost to the employer, the plan creates a $1,500 deductible and deposits $1,125 to an MSA for individual employees. For family coverage, the deductible is $2,000 and the MSA deposit is $1,500. As long as all expenses are approved, the total out-of-pocket exposure is $375 per individual and $500 per family.

NCPA employees may use their MSA funds to see any doctor, enter any hospital or pay any medical bill. However, spending counts toward satisfying the deductible only if the service or procedure is covered under the health plan. For example, employees can pay for dental care or eyeglasses with their MSAs, but those expenses do not apply toward the deductible. Furthermore, all spending counts toward the deductible only if employees see doctors within a network. If they go outside the network, only 75 percent of each "usual and customary" fee counts toward the deductible.

In the future, the buildup of MSA funds will give NCPA employees important options with respect to expensive medical procedures. For example, the health plan will pay the full costs above the deductible only if the procedure is done by a network doctor in a network hospital. But employees will be able to use their MSA funds outside the network to pay that portion of the bill not covered by the insurance.

This example of "patient power" plus managed care is only the beginning. In the future, the two concepts will likely be combined in even more interesting ways.

Source: John C. Goodman, "Medical Savings Accounts and Managed Care," forthcoming Brief Analysis, National Center for Policy Analysis, 12770 Coit Rd., Suite 800, Dallas, TX 75251, (972) 386-6272.

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