Rather than transfer employees into less-than-ideal managed health care plans, there is another way employers can save on their health care expenses and still make their employees happy: Medical Savings Accounts (MSAs).
MSAs give people the opportunity to move from a conventional, low-deductible health insurance plan to one with a high deductible -- $2,000 or $3,000 annually -- and put the premium savings in a personal savings account to be used for routine and preventive medical care.
Some features:
At the 3,000 or so businesses where they have been tried, MSAs almost invariably reduce employers' health insurance expenditures over time and permit employees to benefit financially by managing their health care dollars wisely.
After Jersey City, New Jersey, offered the MSA option to city employees, the city saved $275 for each worker who chose an MSA. And the average MSA refund to employees was $1,000 at the end of the first year.
A recent survey of 27 businesses in Ohio that have adopted MSAs found that:
Source: Pete du Pont (National Center for Policy Analysis), "Health Care Plan That Pleases," Washington Times, March 30, 1996
Medical Savings Accounts (MSAs) are a popular idea, not only with voters, but politicians as well. So health care analysts find it curious that as the Senate prepares to consider the Kassebaum-Kennedy Health Insurance Reform Act there is no provision in the bill to include MSAs.
Moreover, the Act itself is not all that popular. Conservatives fear it is a foot in the hospital door that will soon lead to some variation of the Clinton health care plan. And liberals contend that it would have very little real impact. Also, as the bill now stands, its guaranteed issue provisions could cause problems in the health insurance market. It seems many are supporting the bill simply as a gesture of respect to the retiring Senator Kassebaum.
By contrast, MSAs have won praise:
Across the country, hundreds upon hundreds of companies are creating MSAs for their employees. Current MSA deposits are made with after-tax dollars in order to be compatible with current law. All the MSA legislation would do is let those deposits be made tax-free, giving individuals even more money to cover routine health care.
Senators Dole and Kassebaum have so far refused to permit such changes, thus denying other senators the opportunity to improve a flawed bill.
Source: Merrill Matthews, Jr. (National Center for Policy Analysis), "Make a Bad Bill Better, Add MSAs," Washington Times, April 2, 1996.
Medicaid reform was one of the single most important items in the congressional balanced budget plan -- for good reasons:
One solution states are trying is establishing a Medicaid voucher system or Medicaid Medical Savings Account (MSA). The MSA provides recipients with vouchers they can use to purchase inexpensive, high-deductible catastrophic health insurance from a private insurance company. The balance of the voucher is put in an MSA to pay for day-to-day health care needs, with a partial refund of unused funds at year's end.
The Council for Affordable Health Insurance reports that if Medicaid MSAs had been enacted in 1993, states could have banked five-year savings of $277 billion (in 1992 dollars). With Medicaid MSAs, Medicaid spending would actually decrease from $76.4 billion to $54.2 billion by 1997.
Source: Kristen Becker (American Legislative Exchange Council), "Medicaid as an MSA: A Solution for the States?" Greg Scandlen's Patient Power Report, Vol. 1, No. 1, February 16, 1996.
One million Americans would sign up for Medical Savings Accounts (MSAs) combined with health insurance if tax incentives in the health care bill passed by the House of Representatives last week become law. That's the conclusion of a new report from the Joint Committee on Taxation.
The analysis by the Joint Committee indicates middle Americans will be the largest group to use MSAs. It projects that
The analysis found that voluntarily uninsured workers might be spurred to obtain health insurance as a result of the MSA legislation -- since their after-tax cost for insurance would be lowered by the tax features.
It also suggests younger, healthier workers who don't purchase health insurance now because they do not expect to get sick would have an incentive to buy coverage against major illnesses as a result of MSAs.
Source: Joyce Price, "Medical Savings Accounts May Lure Middle Class," Washington Times, April 2, 1996.
After three years, Washington state's sweeping health care reform program is a shambles -- nobody likes it. Ominously, the state's plan contains many provisions similar to those being pushed by Congressional leaders in Washington, D.C.
The similarities include broader public access to insurance rolls, portability and a short waiting period for people with pre-existing health problems.
Here are some of the results in Washington state:
Experts say that while the state's program is more sweeping than that offered by Senators Nancy Kassebaum (R-Kan) and Edward Kennedy (D-Mass) at the federal level, the parallels are clear. The reforms have encouraged the sickest people to enter the market, while discouraging healthy people from obtaining health insurance until they need it.
Source: Bill Richards, "Health-Care Reform In State of Washington Riles Nearly Everyone," Wall Street Journal, April 5, 1996.
The health insurance plan that Senators Nancy Kassebaum (R-Kan) and Ted Kennedy )D-Mass) are advancing in the Senate will likely drive up the number of Americans who do not have medical coverage, experts warn.
The Senators are proposing a policy known as "guaranteed issue," which means that health insurance companies must sell coverage to everyone -- regardless of health status.
Critics point to these problems:
Guaranteed issue has been tried in several states and resulted in premium increases. When enacted in New York state, one carrier reported that 30 percent of its policyholders experienced increases ranging from 20 to 59 percent.
Consumers could face fewer benefit choices as a result of guaranteed issue. Insurers might be forced to limit the types of treatment and providers that are covered to offset the financial burden of high-cost policyholders.
Source: Sue Blevins (Competitive Enterprise Institute), "Higher Prices, Fewer Choices," Washington Times, April 17, 1996.
Health policy experts suggest that the best way to restore freedom of choice to both patient and physician and to control costs would be to eliminate the tax exemption for employer-provided medical care.
But if that is not politically feasible, suggests Nobel Prize-winning economist Milton Friedman, the best alternative is to extend the tax exemption to all expenditures on medical care -- whether made by the patient directly or by employers.
Such a policy would facilitate the establishment of Medical Savings Accounts.
Advocates say many employers would find it attractive to offer such an arrangement to their employees. In fact, some enterprises have already found a way to do so despite the tax penalty involved.
Believers in competition, critics note, should see the managed care industry's opposition to MSAs for what it is: a special interest using government to limit rather than to expand competition.
Source: Milton Friedman (Hoover Institution), "A Way Out of Soviet-Style Health Care," Wall Street Journal, April 17, 1996.
A new report concludes that two health insurance reforms that advocates claim would lower insurance premiums and increase the number of people with health insurance would have the opposite effect. The report is based on the experience of states that have adopted community rating and guaranteed issue for health insurance. It was published by the Council for Affordable Health Insurance, a group of small and medium-sized insurance companies.
The study's findings have national implications, since both the Senate's proposed Kassebaum/Kennedy bill and the health reform bill passed by the House have limited forms of guaranteed issue, although neither includes community rating.
Guaranteed issue limits the ability of insurers to deny coverage on the basis of health, age and other criteria. Community rating limits insurers' ability to adjust rates. The data show that in those states that have adopted these reforms:
The study analyzed the experience in New York, New Jersey, Vermont, Kentucky, Connecticut, Massachusetts and Florida.
Source: "New Study Faults Guaranteed Issue, Community Rating," National Journal, April 9, 1996.
The annual cost of the Medicaid program to the federal government is expected to almost double from $89 billion in fiscal year 1995 to $172 billion in 2002. The federal government funds 50 percent to 83 percent of Medicaid's cost in each state, based on an annually-adjusted formula designed to give a higher matching rate to states with lower per capita income.
However, unless the program is reformed, the financial impact on the states could be even more severe. Annual spending by the states of their own funds on Medicaid rose from $32 billion in 1990 to $69 billion by 1995.
Assuming an average annual growth in Medicaid spending of 8.4 percent, state spending will increase to $104 billion annually by 2002, for a 225 percent increase over 12 years.
Under the current program, increased Medicaid spending by the states will total $146.4 billion over seven years. If a proposed per capita cap on the federal share were adopted, but the current mandated coverage for various groups maintained, the states would need to raise $47.4 billion on top of that.
Source: William W. Beach, "The Cost to the States of Not Fundamentally Reforming Medicaid," February 8, 1996, Committee Brief No. 22, Heritage Foundation, 214 Massachusetts Avenue, NE, Washington, DC 20002, (202) 546-4400.
Health insurance legislation introduced by Senators Nancy Kassebaum (R-Kan) and Ted Kennedy (D-Mass), designed to handle the insurance "portability" problem, is a giant step in the wrong direction and can only make matters worse.
The bill says that people who have been paying premiums through one employer should be able to obtain immediate coverage -- without a waiting period or pre-existing condition limitation -- from any new employer. But problems arise with the provision that insurers who sell individual policies must sell insurance directly to people who lose access to an employer's insurance.
To see why that is a problem, consider these three facts:
Any reform that raises costs and premiums in the individual market will price out potential buyers and further discourage people from buying insurance.
The solution is to establish risk pools, which currently operate in more than half the states. Sick people who lose employer coverage should be able to obtain insurance at subsidized premiums, with the losses paid for through general taxes or a tax on all health insurance premiums.
Although 25 to 30 percent of employees fear they will become uninsurable if they lose their jobs, only 1 percent of the population is actually denied coverage because of a pre-existing condition.
Source: John C. Goodman (National Center for Policy Analysis), "Insurance 'Reform' Could Worsen Problem," Dallas Morning News, April 17, 1996.
Health care policy experts find it more than curious that moderate Republicans are guiding the direction of the fading conservative revolution in Washington -- in few areas more obvious than present efforts to allow socialization of medicine. Conservative Republicans, who did not campaign on health insurance reform in 1994, seem to be surrendering the issue in 1996.
The Kennedy-Kassebaum bill now before Congress contains three basic ingredients of socialization: health insurance should be available to all at an affordable price, if not free; the federal government must oversee the process; and consumers absolutely cannot be allowed to control their own health care dollars and make decisions for themselves.
A number of health care experts and political observers find it incomprehensible that conservative Republicans -- who usually champion less government and more individual freedom -- are waving the white flag and turning over the medical agenda to their opponents, by caving in on what amounts to the beginnings of socialized health care and giving up on MSAs.
Source: Former Gov. Pete du Pont (National Center for Policy Analysis), "Achilles Heel for the Waning Revolution?" Washington Times, April 22, 1996.
The Senate voted to turn its back on Majority Leader Bob Dole's Medical Savings Account proposal. But it also made what some analysts believe is just as big a mistake: forcing all insurers to treat mental illness just like physical illness. Critics believe this mandated coverage, which is designed to increase access to health insurance for those with mental illnesses, will actually reduce it.
Making insurance cost more will cut the number of people who can afford it or who choose to buy it.
A group that lobbies for the nation's largest employers -- the ERISA Industry Group -- has come out against Kassebaum-Kennedy, saying its mental health mandate is "undisciplined and lacks definition. It covers virtually anything from intense schizophrenia to just being unhappy."
While Congress voted to make it harder for Washington to stick states and cities with unfunded mandates, it seems to be doing exactly the same thing to business.
Source: Editorial, "Health Care Madness," Investor's Business Daily, April 23, 1996
Health policy experts say insufficient attention has been paid to the beneficial impact on savings which would occur if Washington would only enact Medical Savings Account legislation.
MSAs would allow people to move from conventional low-deductible health insurance plans to those with a high deductible -- say, $2,000 to $3,000 per year -- and place the savings from the lower insurance premiums into personal savings accounts, where they can be used to pay for routine medical care. The high-deductible policies would be there to cover major medical expenses. Money left over in the MSA at the end of the year could be withdrawn or rolled over to grow with interest.
This would boost savings which, in turn, would benefit the economy, the government's finances and, indeed, all Americans.
Take the example of a family with employer-provided health insurance:
Most people would have a significant balance in their MSAs at year end, since the vast majority spend little on medical expenses in any given year.
Since the proposal now before Congress would impose severe tax penalties for withdrawing those funds for non-health expenses, most would roll over the balance.
What would be the impact of compounding on those savings over the years?
Health economists Gail A. Jensen and Robert J. Morlock calculated the growth of the MSAs under several scenarios.
Source: Merrill Matthews Jr. (National Center for Policy Analysis), "It's the Savings, Stupid," Investor's Business Daily, April 16, 1996.
Critics of Medical Savings Accounts (MSAs) contend that they are being promoted by special interests and would only benefit the healthy and wealthy. But advocates say they are wrong on at least three counts.
First, however, a review of the MSA concept:
One criticism is the MSAs would only attract healthy people -- leaving sicker people in the conventional insurance pool -- and would limit options.
A second criticism is that MSAs would only attract wealthy people looking for a tax break.
Then there is the charge that MSAs are being pushed by special interests. This is ironic, since the opponents of MSAs are Health Maintenance Organizations and insurance companies, which stand to benefit if individuals continue to be prohibited from keeping and managing more of their health care dollars.
Yet even as special interests try to kill MSAs, and prevent people from having control over their health care dollars, President Clinton has recently re-introduced his proposal to create special pension accounts in which people could make a tax-free deposit yearly into an IRA that could be used for, among other things, medical expenses. It sounds like President Clinton is rebuking his party and pushing MSAs.
Source: Merrill Matthews Jr. (National Center for Policy Analysis), "Misplaced Criticism of MSAs," Washington Times, April 24, 1996.
Several states have adopted health insurance reforms that have substantially increased the number of uninsured people and the cost of insurance.
The reforms were intended to make it easier and less expensive for individuals and small group plans to obtain health insurance. However, although they allow sicker individuals to obtain coverage, the resulting premium increases make insurance less affordable for healthier individuals and small employer plans.
The seven states examined adopted forms of "guaranteed issue" and/or "community rating." Guaranteed issue limits the ability of insurers to deny coverage on the basis of health, age and other criteria. Community rating limits insurers' ability to adjust rates for different risk groups.
These reforms have disrupted state insurance markets:
Vermont, Connecticut, Massachusetts and Florida have had similar increases in premiums and people who become uninsured.
The U.S. Senate's Kassebaum/Kennedy bill and the health reform bill passed by the House have limited forms of guaranteed issue, although neither includes community rating.
Source: Art Astorino, et al., "State Health Insurance Reform: Experience With Community Rating and Guaranteed Issue in the Small Group And Individual Markets," April 1996, Council for Affordable Health Insurance, 112 South West Street, 4th Floor, Alexandria, VA 22314, (703) 836-6200.
Many health care analysts believe Medical Savings Accounts (MSAs) represent the best of several options that could be made available to health care consumers.
MSAs would work this way:
Moreover, funds in accounts could be used to pay for medical equipment, prescription drugs, and other items or services not covered by an insurance policy.
Today, more than eight out of ten people with private coverage get it from their employers. And most firms -- 83 percent, by one estimate -- offer their employees only one health plan. Backers think the MSA option would be particularly attractive to owners of small businesses.
While critics charge MSAs would only benefit the rich, one congressional study showed 80 percent of those likely to choose them make between $30,000 and $75,000 a year. Various studies have found that MSAs would have as much appeal to lower-income households as they would to those with higher incomes. MSAs could help cut the number of uninsured -- a goal of all health care reformers.
Some 15 states have already passed bills that give MSAs a break from state taxes. And the benefits are gaining MSA proponents among some financial and insurance companies.
And while others complain that MSAs are a GOP sop to Golden Rule Insurance, whose chairman has been a big Republican donor, several major companies are now developing them.
Source: John Merline, "Medi-Save: Innovation Under Fire," Investor's Business Daily, April 29, 1996.
Some health policy experts are predicting that managed health care soon will face severe problems -- some irreversible.
Managed care critics point out that tax-free health benefits encourages employer-financing; but more and more employers want out of the business.
Experts say this could be accomplished either by eliminating deductions for fringe benefits or by allowing individuals to establish tax-free Medical Savings Accounts.
Source: Jesse S. Hickson (American Medical Association), "What's Ahead for Health Care?" Investor's Business Daily, April 29, 1996.