Medical Savings Accounts and Prescription Drugs: Evidence from South Africa
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Medical Savings Accounts (MSAs) have been available in South Africa for almost a decade. Health insurance plans that utilize MSAs have captured half the market for health insurance there. Individuals use these accounts to pay expenses not paid for by third-party health insurance.
Unlike the United States experience, however, MSAs in South Africa developed in a relatively free health insurance marketplace. As a result, employers and insurers have been able to experiment and innovate to find out what works and what does not. Their experience offers valuable lessons for the United States.
For example, a typical South African MSA plan has a deductible that varies, depending on the type of health care service. In a hospital setting, where patients have little discretion, the deductible is typically zero. But for outpatient care, where patients have considerable discretion, a deductible of, say, $1,100 typically applies. In most cases, the high deductible also applies to drugs. However, in the case of chronic conditions, for which skimping on drugs could lead to more expensive care later, the deductible drops back to zero.
When the behavior of South African families enrolled in conventional insurance plans is compared with those in MSA plans, the results are striking:
- On the average, discretionary spending (primarily outpatient spending) is 47 percent lower for those enrolled in Medical Savings Accounts plans.
- In addition, no evidence suggests that members of MSA plans are shifting costs to a hospital setting where the insurer would foot the entire bill.
In fact, the evidence strongly suggests that MSAs - when designed and used in the right way - are a useful tool for controlling the costs of prescription drugs. We compared the behavior of 76,072 enrollees before and after they reached their deductible for outpatient spending. Before reaching the deductible, claims for prescribed drugs were paid out of the member's MSA. Since patients get to keep any MSA money they do not spend, before reaching the deductible they are spending their own money. Once they reach the deductible, the insurer pays these claims in full. The difference:
- The average cost of a prescription for members increased 7.1 percent after they hit their deductible.
- More dramatically, the average number of prescriptions filled per month grew by 19.1 percent after members exceeded the deductible.
- Overall, the increase in per-member-per-month costs after hitting the threshold was 27.6 percent.
Considering that annual U.S. drug spending is more than $100 billion, these results are a powerful indicator of the potential of MSAs to control U.S. health care costs.
Patients are often more effective and more efficient monitors of prescription drug therapy than are third-party payers, even under a regime of strict managed care. The switch from a brand-name drug to a generic equivalent may affect some patients differently than others. Different dosage levels also have different effects on different patients. No one is in a better position to observe these effects and weigh the costs against the benefits of alternatives than the patients themselves. For example:
- South African patients spending from their own MSAs reduced spending on Ritalin (for children with attention deficit disorder) by almost 20 percent compared to their spending under a managed care arrangement, without any adverse health affects.
- Patients using their MSAs also were much more likely to purchase a generic equivalent that cost only 38 percent as much as Prozac (for depression); by contrast, use of the brand-name drug jumped 45 percent when patients were spending insurance company money.
In both these examples, patients with MSAs controlled costs as well or better than managed care - without the costs associated with managed care.
Some MSA critics contend that the introduction of deductibles might induce members to forgo necessary care in order to save money. To test this proposition, we examined the use of two drugs (Fosamax and Trisequens) used primarily for the prevention and treatment of osteoporosis in postmenopausal women. Patients used some of their MSA funds to buy these drugs in 1999, but switched to managed care the following year so the insurer bore the entire cost of the drugs. Here, the results are quite different from the case of Ritalin. The amounts spent using MSAs are almost indistinguishable from those under the chronic benefit, providing convincing evidence that members were not forgoing necessary care.