MSA's Can Be a Windfall for All
Table of Contents
- Types of Health Spending Accounts
- A Drumbeat of Criticism
- Are Cost Savings from Raising Deductibles Exaggerated?
- Do MSAs Change Patient Behavior?
- Will MSAs Attract "the Healthy And the Wealthy" at the Expense of Everybody Else?
- Do MSAs Encourage People To Avoid Needed Preventive Care?
- Will MSAs Pull the Best Risks from "the Insurance Pool," Raising Costs for Those Who Remain?
- Can MSAs Help Control Costs over the Deductible, Where the Need Is Greatest?
A Drumbeat of Criticism
Despite the advantages of the MSA approach to health care financing, there has been a steady drumbeat of criticism. Sen. Ted Kennedy (D-Mass.) was the most vociferous as he filibustered against his own bill15 on June 10, 1996, saying "MSAs are likely to raise health insurance premiums through the roof ... they will destroy the insurance pool...."16
A day later he said, "Medical savings accounts have become the Trojan horse that could destroy health care reform.... They will raise premiums for the vast majority of Americans." And on June 14, 1996, he said, "The small business sector ... is the most vulnerable to the disruptions that medical savings accounts would cause."
"Despite the advantages of MSA's, there has been a steady drumbeat of criticism."
About a year later, the Director of Health Policy Analysis for Consumers Union, Gail Shearer, wrote to the Wall Street Journal that "premiums for traditional health insurance will increase by as much as 300 percent if MSAs are allowed without limit into the health insurance market." She added, "The MSA demonstration program ... threatens to poison the entire health insurance market...."17
The drumbeat continues to this day. A recent paper by the Center on Budget and Policy Priorities claims that, because of adverse selection, "premiums for conventional insurance could more than double if MSA use becomes widespread" and could "jeopardize health insurance coverage for substantial numbers of Americans..."18
These charges are certainly dramatic and would be alarming - if there were any factual basis for them. But there is none. Not one of the assertions quoted is supported by research. To the extent the critics footnote their charges, they usually quote one another, creating an ever more impassioned circle of hysteria.
The core charge is that MSAs will result in "adverse selection." It is alleged that the healthy and the wealthy will opt for MSAs, "depleting the insurance pool" of the good risks and leaving only high-risk people in "traditional" insurance.
It is puzzling that these same critics have been sanguine about the erosion in "traditional" insurance that has resulted from the growth of managed care. According to the Kaiser Family Foundation, "traditional" insurance now covers a mere 7 percent of all workers, down from 73 percent in 1988 and 27 percent in 1996.19 Meanwhile, premiums for "traditional" coverage have escalated, rising from 21 percent higher than HMO premiums in 1997 to 32 percent higher in 2001.20 [See Table I.] One might think that those who are so anxious about the future of "traditional" or "conventional" health insurance would be protesting the growth of managed care as well. In fact, they are not.
"Most of the criticism stems from a poor understanding of MSA's."
Most of the criticism stems from either a poor understanding of the dynamics of health insurance or an ideological commitment to creating a national health insurance system in the United States. In either case, there is little foundation for the criticism and evidence aplenty that contradicts the charges. The assertions against MSAs are generally that:
- Cost savings from raising deductibles are exaggerated.
- MSAs will not change patient behavior.
- MSAs will be attractive to "the healthy and the wealthy" at the expense of everybody else.
- MSAs will encourage people to avoid needed preventive care.
- MSAs will pull the best risks from "the insurance pool," raising costs for those who remain.
- MSAs will not help control costs over the deductible, where the need is greatest.
We will examine these charges one at a time.