Medical Savings Accounts in South Africa
Table of Contents
Under the regime of Nelson Mandela in the 1990s, South Africa conducted a unique and interesting experiment in the market for private insurance. After deregulation in 1994, virtually every type of health insurance plan sold in the United States was able to enter the South African market - from HMOs to PPOs to Medical Savings Account (MSA) plans. And after a favorable ruling from the tax authorities, employer deposits to MSAs received the same tax treatment as employer payment of third-party insurance premiums.
Thus in South Africa, MSA plans have competed against other forms of insurance on a level playing field. The result has been remarkable. In a few short years, MSA plans have become increasingly popular, and they already have captured about half the market. By contrast, HMO-type managed care has made only small inroads.
In the United States, the design of tax-free MSA plans allowed under a special pilot program is rigidly specified in the tax code. In South Africa, insurers have been free to innovate and experiment. The result is a far more interesting product - one better designed to meet customer needs:
- Whereas a U.S.-type MSA plan has an across-the-board deductible covering all medical services, South African MSA plans typically have varying deductibles.
- For example, a representative plan has no deductible for hospital care on the theory that patients exercise little discretion within hospitals, but a $1,200 deductible for outpatient care on the theory that patients have a lot of discretion in that setting.
- The high deductible also applies to drugs, but for chronic conditions, for which skimping on drugs could lead to more expensive care later, the deductible drops back to zero.
Only 20 percent of South Africa's population has private health insurance. Most of the remainder relies on a public system of free care. But because of rationing and problems of quality in the public sector, the private sector has been growing. This has encouraged insurers to introduce new products and product designs. Among the more interesting MSA product innovations are:
- A wellness program with prizes and bonuses for wellness activities (e.g., health club participation) and preventive measurers (e.g., Pap smears and mammograms).
- An information hotline to assist patients in making decisions.
- A system for electronically verifying MSA balances and third-party liability at the time prescription drugs are purchased.
South Africa's extensive experience with MSAs enables researchers to answer questions about them that have been raised in the United States and elsewhere:
- MSAs definitely save money; the average MSA holder spends about half as much on outpatient services plus drugs as do people in traditional plans.
- There is no evidence that MSA holders skimp on primary care in a way that leads to higher inpatient costs.
- Judged by the incidence of catastrophic claims, MSA holders are not healthier as a group than enrollees in conventional insurance plans.
- Although MSA plans appeal to people who are healthy, those who are sick and have high health care costs are also financially better off in MSA plans than in traditional insurance.
These findings contain important lessons for other countries considering health insurance reform.