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Controlling Health Care Costs With Medical Savings Accounts
Footnotes
1 For a more complete discussion of the issued covered in this report, see
John Goodman and Gerald Musgrave, Solving America's Health Care Crisis
(Washington, DC: Cato Institute), forthcoming. Back...
2 Glenn Ruffenbach, "Medical Tests Go Under the Microscope," Wall
Street Journal, February 7, 1989. Back...
3 Simon Rottenberg, "Unintended Consequences: The Probable Effects
of Mandated Medical Insurance," Regulation, Vol. 13, No. 2,
Summer 1990, pp. 27-28. Back...
4 See Robert Brook et al., The Effect of Coinsurance on the Health of
Adults (Santa Monica, CA: Rand, 1984); and Willard Manning et al., "Health
Insurance and the Demand for Health Care: Evidence from a Randomized Experiment,"
American Economic Review, June 1987. For a survey of economic studies
of the demand for medical care, see Paul Feldstein, Healthcare Economics
(New York: Wiley, 1988). Back...
5 The one exception was vision care, which is not surprising - since eyeglasses
are often viewed as a marginal health care expenditure. Sometimes mentioned
is high blood pressure, since it was close to being statistically significant.
Researchers could find no other significant differences in health outcomes.
See Joseph Newhouse et al., "Some Interim Results from a Controlled
Trial of Cost Sharing in Health Insurance," New England Journal
of Medicine, Vol. 305, No. 25, December 17, 1981, pp. 1501-1507; and
Robert Brook et al., "Does Free Care Improve Adults' Health,"
New England Journal of Medicine, Vol. 309, No. 23, December 8, 1983,
pp. 1426-1434. Back...
6 The value of the benefit equals 1/(1-t), where t is the marginal federal
income tax rate plus the combined employer-employee Social Security payroll
tax rate. For a worker in the 15 percent bracket, t = 0.15 + 0.153. For
a worker in the 28 percent bracket, t = 0.28 + 0.153. Back...
7 Unless the policyholders have reached the cap on their copayment ($1,000),
they must pay 20 percent of medical expenses above the deductible. Thus,
if policyholders with a $1,000 deductible have medical expenses of $2,500
they must pay the first $1,000 plus 20 percent of the next $1,500 (or $300).
The insurance company, in this instance, will pay $1,200. Back...
8 These calculations are based on policies sold by Golden Rule Insurance
Company, the largest seller of individual and family policies in the country.
Other insurance companies sell similar policies at similar prices. See John
Goodman and Gerald Musgrave, "The Cost of Low-Deductible Health Insurance,"
National Center for Policy Analysis, forthcoming. Back...
9 See National Center for Policy Analysis, NCPA Policy Report No. 136, February 1988. Back...
10 The foregone coverage is 80% x ($2,500 - $250) = $1,800. Back...
11 Blue Cross and Blue Shield System, Reforming the Small Group Health
Insurance Market, March 1991, p. 6. Back...
12 Assumes that administrative costs are proportional to claims, which is consistent with the industry's experience. Back...
13 The concept of medical savings accounts was originated by Jesse Hixson,
currently a health policy economist with the American Medical Association.
The idea first appeared in print in John Goodman, Peter Ferrara, Gerald
Musgrave and Richard Rahn, "Solving the Problem of Medicare,"
National Center for Policy Analysis, NCPA Policy Report No. 109, January
1984. The idea achieved further impact through John Goodman and Richard
Rahn, "Salvaging Medicare with an IRA," Wall Street Journal,
March 20, 1984. That same year Singapore introduced the program discussed
in Appendix B. Back...
14 The employee's expenses would be the $250 deductible plus a coinsurance
payment of $150 (20% x $750). Back...
15 Under a conventional policy, the insured would have to pay $400 out of
personal funds. When insurance is combined with Medisave funds, however,
the insured would have to pay less than $400 out of other personal funds. Back...
16 The family's expenses would be the $250 deductible plus a copayment amount
of $450 [20% x ($2,500-$250)]. Back...
17 Under the current budget rules, any change in policy proposed in Congress
must not cause a net loss of federal revenue. The forecasting techniques
used to estimate revenue effects are "static" rather than "dynamic,"
however. Thus, forecasters tend to ignore any behavioral economic responses
that would result from a change in the composition of the total amount of
non-taxed employee benefits. Back...
18 See Alain Enthoven, "Health Policy Mismatch," Health Affairs,
Winter 1985, pp. 5-13. Back...
19 See note 9 Back...
20 For example, individuals might be given a tax deduction for the amount
of money that would be necessary to purchase a standard $250 deductible
policy. For the purchase of higher deductible policies, taxpayers could
be granted the right to deposit the premium savings in Medisave accounts. Back...
21 According to estimates by Hay/Huggins Company, the "load factor"
for private health insurance ranges from 5.5 percent for groups of 10,000
or more to 40 percent for groups of less than five people. See Uwe Reinhardt,
"Breaking American Health Policy Gridlock," Health Affairs,
Summer 1991, Exhibit 1, p. 100. Back...
22 American Medical Association Center for Health Policy Research, "The
Administrative Burden of Health Insurance on Physicians," SMS Report,
Vol. 3, No. 2, 1989. Back...
23 See Burt Sims, "Cutting Health Care Costs: A Major Breakthrough,"
US Business to Business, Winter 1991. Back...
24 Currently, there are three competing technologies: magnetic striped cards,
smart cards (with integrated circuits) and optical memory (laser) cards.
See C. Peter Waegemann, "Patient Cards - The Promise of the Future?"
Medical Practice Management, Spring 1990, pp. 264-268. Back...
25 Ibid., p. 264. Back...
26 For these and other defects of Canadian national health insurance, see
John Goodman and Gerald Musgrave, "Common Myths About National Health
Insurance," National Center for Policy Analysis, forthcoming. Back...
27 See General Accounting Office, Canadian Health Insurance: Lessons
for the United States, June 1991. Back...
28 See Patricia M. Danzon, "The Hidden Cost of Budget-Constrained Health
Insurance," paper presented to an American Enterprise Institute conference
on "American Health Policy," Washington, DC, October 3-4, 1991. Back...
29 For general descriptions of the Singapore system, see John Goodman and
Peter Ferrara, "Private Alternatives to Social Security in Other Countries,"
National Center for Policy Analysis, NCPA Policy Report No. 132, April 1987;
and "The Report of the Central Provident Fund Study Group," Singapore
Economic Review, Vol. 31, No. 1, April 1986. We are indebted to Armina
Tyabji for collecting some of the material used in this section. Back...
30 The program does not include people who are self-employed and people
covered by separate plans such as university employees and pensionable civil
servants. Back...
31 Investments may be made in real estate, in approved shares of stock in
Singapore companies and in gold. People are not allowed to purchase bonds
or shares of stock in foreign countries. Back...
32 These loans must be repaid. Back...
33 All figures expressed in U.S. dollars in this section are based on a
conversion rate of S$1.76=US$1 Back...
34 Currently, the maximum taxable wage is $72,000. The average wage was
$28,684 in 1990. Back...
35 Hospital patients also face copayments, which they must make with out-of-pocket
funds, in addition to payments from Medisave accounts. Back...
36 When Medisave accounts were started in 1984, the required balance was
S$5,000 or the actual balance, whichever was lower. That amount has increased
by S$500 per year and will continue to increase until it reaches S$10,000
in 1994. Back...
John C. Goodman is president of the National Center for Policy Analysis.
Dr. Goodman earned his Ph.D. in economics at Columbia University and has
engaged in teaching and research at six colleges and universities, including
Columbia University, Stanford University, Dartmouth College, Sarah Lawrence
College and Southern Methodist University. Dr. Goodman has written widely
on health care, Social Security, privatization, the welfare state and other
public policy issues. He is author of six books and numerous scholarly articles.
His published works include National Health Care in Great Britain,
Regulation of Medical Care: Is the Price Too High?, Economics
of Public Policy and Social Security in the United Kingdom.
About the Authors
Gerald L. Musgrave is President of Economics America, Inc., a consulting
firm in Ann Arbor, Michigan. A former Research Professor of Economics at
the University of Michigan, Dr. Musgrave also has written widely on health
care and other issues, and is the author or coauthor of several other NCPA
studies. He is the chairman of the Health Economics Roundtable of the National
Association of Business Economists and served as a presidential appointee
to the National Institutes of Health Recombinant DNA Advisory Committee.
He is a director of the Mackinac Center in Michigan and chairman of the
academic advisory board of the Bahamas Institute of Economic Affairs.