Opinion Editorial | |
| Wednesday, January 21, 1998 | |
Solving Problems with Medical Savings AccountsPete du PontFormer Governor of Delaware, is Policy Chairman of the National Center for Policy Analysis |
For the most part, the tradition of employer-provided health insurance
began burgeoning during World War II. Because of government wage and price
controls, employers couldn't hire vital workers away from other companies
with more money. But they could compete using health insurance and other
fringe benefits, which weren't covered by the controls. And they did. Today nearly 90 percent of all Americans under the age of 65 who have
private health insurance get it through an employer -- either their own or
a family member's -- and in too many instances neither the employer nor the
insured person is particularly satisfied. As employers' health care costs have skyrocketed in recent years, they
have turned more and more to managed care of one kind or another to hold
down costs. About 160 million people are in managed care plans. Most people
are healthy, and managed care works pretty well until they get sick. Then
it's often another matter, since sick people are a challenge to a system
specifically designed to hold down costs. There are plenty of horror stories
about people being denied care or getting low-quality care. As for the
managed care plans themselves, those that attract too large a percentage
of sick people lose money and leave the market or go out of business. In the past, people who might want to buy their own health insurance
have been thwarted by the tax law. If the employer furnishes the employee's
health insurance, it's a deductible business expense and is excluded from
the employee's taxable income. But if, say, the employer provides the same
amount to an employee to provide his or her own health care, the money is
taxed as income. Thus employer-provided health insurance is subsidized. That's why most people still get their insurance through an employer.
It's also why the concept of high-deductible health insurance and medical
savings accounts (MSAs) has not been more widely adopted. Health insurance with a high deductible is much less expensive than a
low-deductible policy. Putting that premium difference into an MSA would
give the insured person money to use for smaller medical expenses. Insurance
would only come into play for catastrophic expenses. This concept has the advantage of letting people decide for themselves,
in concert with their doctor, how and whether to spend money for health
care. It also gives them an incentive to be careful about incurring health
care expenses, because they can keep anything left in the MSA at the end
of the year. In the last two years Congress finally enacted two pilot tax-advantaged
MSA programs, one for the elderly on Medicare and the other for employees
of small businesses and the self-employed. But these still don't answer
the challenge of dealing with managed care. For one thing, if an individual
has money left in the MSA at the end of the year, the money is taxed and
penalized if it's withdrawn and spent on something other than health care.
So much for the financial incentive for the MSA holder to control expenses. Now NCPA President John Goodman, the foremost proponent of MSAs, has
proposed a different approach -- one that would also take managed care into
account. Those who chose this approach could deposit after-tax money into
an MSA designed to wrap around their managed care plan. Like the new Roth
IRA, these deposits could be withdrawn tax-free at any time (which would
require a change in the current tax law for the MSA deposits). Goodman explains that this would give more flexibility to people enrolled
in managed care plans. For example, they could use the MSA to pay doctors
not in the managed care network or to buy health care services not covered
by the plan. It would also give more flexibility to employers and insurers. Their
plans might, for example, provide first-dollar coverage for some services
like preventive tests that have a proven payback and continue the high deductible
for other services. Or there could be a special type of fee-for-service
plan, which paid fixed fees for medical services and procedures but allowed
MSA funds to pay the difference if the scheduled fee wasn't sufficient. Managed care is evolving. The Goodman MSA would be a logical step in
ensuring that the next phase of the evolution gives the health care consumer
greater control of personal health care costs and encourages more concentration
by providers on the quality of care, rather than its cost. Home | Support Us | All Issues | Social Security Debate Central | Contact Us |