MSAs With Fee-for-Service Catastrophic Coverage

MSAs are often shown in combination with traditional fee-for-service coverage for all expenses above the deductible. Fee-for-service insurance is more expensive than managed care because it lacks the latter's ability to negotiate lower prices with providers.

However, seniors should be free to purchase fee-for-service policies, though savings would not be as large. Under this option, the MSA plan again starts with a deductible of $3,000 in 1996 that rises to $4,388 in 2002. A health insurance policy would cover all expenses over this deductible.

Milliman & Robertson calculated the amount remaining to be deposited in the MSA.¹² Their results are shown in Table IV. In 1996, with a $3,000 deductible, about $1,500 would be deposited into the MSA. [See Figure III.] Thus the most an elderly beneficiary would have to pay out of pocket would be about $1,500 (the $3,000 deductible minus the $1,500 in the MSA). If the average Medigap premium of $1,178 in 1996 were contributed, the beneficiary would have an MSA of $2,685 to cover expenses below the $3,000 deductible, leaving a maximum out-of-pocket expense of only $315.

By 2002, with a deductible of $4,388, the MSA deposit would be $1,390. Adding the Medigap premium would produce an MSA total of $3,109, leaving a maximum out-of-pocket exposure of $1,279. This gap would be completely eliminated if the beneficiary spent only half the MSA funds for two years and saved the remainder for future health expenses. [See Appendix B.]

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