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Medical Savings Accounts: Obstacles to Their Growth and Ways to Improve Them
July 1998
Regulatory Problems
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"In spite of obstacles, MSAs are an important alternative for of health care financing." "Today, there are more than 1,000 state mandates." "Mandates can significantly increase the cost of a health insurance policy." |
To design and implement the regulations that govern the accounts, the MSA legislation looked to the Internal Revenue Service. As a result, MSAs are even more cumbersome.
State Regulations. Confining MSAs to the small-group market exposes them to all the onerous regulations state governments have imposed on this market during the past 10 years. Over the decade, the National Association of Insurance Commissioners (NAIC) has led a systematic campaign to "reform" the small group market. These reforms have included:
- Requiring guaranteed issue or open enrollment for health insurance.
- Requiring community rating or modified community rating of premiums.
- Requiring that all plans offer a limited choice of standardized benefits.
- Providing subsidies to carriers that cover more than a "fair share" of high-risk enrollees.
The merits and demerits of these changes can and have been argued endlessly. But there can be no question that the result has been increased costs, less choice and a substantial increase in the number of uninsured during this period. The NAIC has acknowledged that its campaign to impose the regulations had nothing to do with increasing the affordability of coverage, but was intended to "stabilize" the market. 6 Apparently, they define stability as fewer companies offering fewer choices for coverage - leading, ultimately, to less competition. Today, entire states and regions of the country are shunned by the health insurance industry because insurers cannot afford to do business under these conditions. Several states have repealed these misguided "reforms," but no free market for small-group health insurance exists.
Unfortunately, the MSA law confines Medical Savings Accounts to that market segment that was devastated by the regulations - the small-group market. Virtually none of the state laws apply to employers with 50 or more workers, regardless of whether they are self-funded or purchase fully insured plans.
Mandated Benefits. The other restriction in the small group market - long-standing and partially acknowledged by Congress when it wrote the MSA law - is the prevalence of state-mandated benefits. A state mandate is a requirement that an insurance company offer specified benefits in an insurance plan. Thus legislatures may require insurers to cover mammograms, as they have in 46 states. By contrast, legislatures may require insurers to offer only specified benefits or providers. In that case, employers may accept or decline the service or provider. In 1965 there were only seven state-mandated benefits; today there are more than 1,000. [See Figure III.] Many of them cover basic providers such as podiatrists and treatments such as drug and alcohol abuse, but some cover nonmedical expenses such as hairpieces and marriage counseling. 7
Generally, mandated-benefit laws are well-intentioned and aimed at helping some particular group of constituents. However, they always increase the cost of health insurance, forcing some people to cancel their coverage. The increase depends on the nature of the legislation, the geographic location and the usage patterns of a particular population. For example, utilization of mandated coverage for drug abuse treatment would likely be higher in states with larger inner-city populations such as California and New York than in, say, Utah.
A recent analysis prepared for the National Center for Policy Analysis by the actuarial firm Milliman & Robertson estimates the costs of 12 common mandates and finds that, collectively, they can increase the cost of insurance as much as 30 percent. Most states have between 30 and 40 mandates. Their economic impacts vary, but as a whole they can significantly increase the cost of a health insurance policy.
The problem for the MSA legislation is that many of these laws require first-dollar coverage for the affected service, but Congress prohibited first-dollar coverage for an MSA-compatible insurance policy. For example, a law might require that alcoholism treatment be covered without any deductible or copayments, or it might require that 80 percent of the costs of the first 10 office visits to a mental health provider be covered. But the MSA law forbids any coverage for most services below the deductible.
Congress made a half-hearted attempt to address this issue by allowing the high-deductible plan to cover state-mandated preventive services benefits, but not all mandates can be considered preventive in nature. In fact, the Health Insurance Association of America (HIAA) has identified nine states - Connecticut, Kansas, Maryland, Minnesota, New York, North Dakota, Pennsylvania, Rhode Island and Wisconsin8 - with mandated benefit laws for small groups that disqualify plans from offering MSAs. The Council for Affordable Health Insurance (CAHI) has done a similar search and also identified nine states plus the District of Columbia - this list includes Delaware and Maine but excludes Rhode Island and Wisconsin - that have disqualifying mandates. 9
Some of the states, notably Kansas and Wisconsin, reportedly have amended their mandate laws to allow for MSAs. The others apparently have not. This means that state mandates render more than one-fifth of the population of the United States ineligible for an MSA, in addition to the other constraints placed on the program. 10
Regulatory Delays. The Internal Revenue Service was still issuing substantive regulations as late as April 22, 1997 - four months after the effective date of the law. 11 Because of the substance of these late regulations, some companies had to recall their marketing material, retrain their agents and reprogram their computers. Others chose not to participate in the MSA program. Plus, as indicated above, the prorating of contributions makes MSAs hard to sell in the latter half of the year, so the late regulations effectively removed an entire year from MSA marketing.
State Regulatory Resistance. State insurance department approval of MSA plans has been extremely slow in many states, even though the insurance products are not substantially different from those already on the market. For example, Blue Cross Blue Shield of Louisiana filed for approval of its plan in June 1997, then waited until November of that year for state insurance department approval. 12 The delay may have been due to bureaucratic inefficiency, personal opposition to the idea of MSAs by the regulators or resentment of congressional meddling. In any case, state insurance departments often oppose innovative solutions.