Medical Savings Accounts and Prescription Drugs: Evidence from South Africa
Table of Contents
Introduction
Under the regime of Nelson Mandela in the 1990s, South Africa conducted a unique experiment in the market for private health 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 health maintenance organizations (HMOs) to preferred provider organizations (PPOs) to Medical Savings Account plans (MSAs). 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. Employees were free to use their MSA funds to pay expenses not paid by third-party insurance.
"In South Africa, Medical Savings Account (MSA) plans have captured half the market for private insurance."
Thus in South Africa, MSA plans have competed against other forms of insurance on a level playing field for several years. The result has been remarkable. From a zero base in 1994, MSAs have to date captured about half of the private health insurance market (which covers approximately 7 million people). By contrast, HMO-type managed care has made only small inroads. In addition, both average costs and annual increases under MSAs have been significantly lower than under conventional health insurance plans. The overall success of MSA plans in South Africa provides compelling evidence of their attractiveness to both employer groups and individual consumers.
This document evaluates the evidence for the effectiveness of MSAs in ensuring affordable and sustainable care by examining five areas of expenditure:
- Overall prescription drug spending,
- Spending on discretionary outpatient services,
- Spending on discretionary drugs and their generic equivalents, and
- Spending on nondiscretionary drugs.
"MSA patients reduce spending on discretionary items, without any adverse effects on their health."
It makes the case that MSAs, by creating the correct incentives, can ensure that discretionary costs remain under control. At the same time, it clearly shows that MSA plan members do not forgo preventive care that is in their long-term interest.
