Advantages of Medical Savings Accounts

Creating individual and family Medisave accounts would represent a major departure from the current system of paying for health care. These accounts would have immediate advantages which would become even more important over time.

1. Lowering the Cost of Health Insurance. Medisave accounts would allow people to substitute less costly self-insurance for more costly third-party insurance for small medical bills. To the degree they are self-insured, people would no longer face premium increases caused by the wasteful consumption decisions of others. And to the extent that third-party insurance was reserved for truly risky, catastrophic events, the cost per dollar of coverage would be much lower than it is today.

2. Lowering the Administrative Costs of Health Care. Because we rely on third parties to pay a large part of almost every medical bill, unnecessary and burdensome paperwork is created for doctors, hospital administrators and insurers. By one estimate, as much as $33 billion a year in administrative costs could be saved by the general use of Medisave accounts. (See the discussion below.)

3. Lowering the Cost of Health Care. Medisave accounts would institute the only cost control program that has ever worked - patients avoiding waste because they have a financial self-interest in doing so. When people spent money from their Medisave accounts, they would be spending their own money, not someone else's - an excellent incentive to buy prudently. By one estimate, the general use of Medisave accounts would reduce total health care spending by almost one-third. (See the discussion below.)

4. Restoring the Doctor-Patient Relationship. Medisave accounts would give individuals direct control over their health care dollars - freeing them from the arbitrary, bureaucratic constraints often imposed by third-party insurers. Physicians would see patients rather than third-party payers as the principal buyers of health care services and would be more likely to act as patients' agents rather than agents of an institutional bureaucracy.

5. Giving Patients More Control Over the Services They Are Insured For. Every group health insurance plan includes some services and providers, and excludes others. But the preferences of the group may not necessarily be those of the individual. In addition, state legislators are increasingly imposing their views on private group policies through mandated health insurance benefit laws. To the extent that individuals were self-insured, they would make these decisions for themselves.

6. Enjoying the Advantages of a Competitive Medical Marketplace. In most places, a patient cannot discover the cost of even routine surgery prior to entering a hospital. At the time of discharge, patients are confronted with lengthy, line-item statements not even their doctors can read. Thus, the people who make the purchasing decisions cannot find out what the price is in advance and cannot understand what they were charged afterward. The evidence suggests that these problems are created by our system of third-party payment and are not natural phenomena of the marketplace. When patients pay with their own money (e.g., cosmetic surgery in the United States and most routine surgery at private hospitals in Britain), they usually get a package price in advance and can engage in comparison shopping.

7. Enjoying the Advantages of Real Health Insurance. Because third-party insurance pays almost all U.S. medical bills, to a large extent health insurance is not really insurance. Instead, it is prepayment for consumption of medical care. One consequence of this situation is that people with preexisting health problems often cannot buy insurance to cover other health risks. A system of Medisave accounts would encourage a market for genuine catastrophic health insurance and would make such insurance available to more people.

8. Expanding the Benefits of Self-Insurance Over Time. The funds in most Medisave accounts would grow over time, allowing people to choose higher deductible policies - thus relying less on third-party insurers and increasing their control over their health care dollars.

9. Creating Incentives for Better Lifestyle Choices. Since Medisave accounts would last over an individual's entire life, they would allow people to engage in lifetime planning - recognizing that health (and medical expenses) are related to their lifestyle choices. People would bear more of the costs of their bad decisions and reap more of the benefits of their good ones. Those who don't smoke, who eat and drink in moderation, refrain from drug use and otherwise engage in safe conduct would realize financial rewards for their behavior.

10. Expanding Health Insurance Options During Retirement. Medisave accounts would eventually become an important source of funds from which to purchase health insurance or make direct payments for medical expenses not covered by Medicare during retirement. Such funds would help America solve the growing problem of long-term care for the elderly.

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