HOME / DONATE / ONE LEVEL UP / ABOUT NCPA / CONTACT
Medical Savings Accounts: Obstacles to Their Growth and Ways to Improve Them
July 1998
Where Are We Today?
|
|
|
"In spite of obstacles, MSAs are an important alternative for of health care financing." |
- The daunting prospect of forming strategic alliances with banks, investment
firms, credit card companies and third-party administrators for the first
time ever.
- The need to convince agents to market a brand-new product that is
not well recognized by the public, is difficult to explain and carries with
it lower compensation due to a smaller premium base on which commissions
are calculated.
- The dangers of being associated with a controversial political issue whose opponents use venomous rhetoric.
As premium inflation returns and the consumer and political backlash against managed care grows, policymakers may be grateful that there is an alternative already on the books. MSAs are no longer a new and untested idea - they are a reality in the marketplace. While many of the inflated expectations of MSA advocates have not been realized, neither have the predictions of doom presented by the opponents materialized.
Reports from the field indicate that enrollment is growing steadily. The shakeout period is over, alliances have been built, agents are being trained and awareness is growing. There will probably be 125,000 accounts on the books by the time of the next IRS census, with accelerating growth after that, mimicking the adoption curve for other new ideas and technologies. A few daring souls go first. If they are satisfied, they tell their friends and a multiplier effect occurs. More companies enter the market, which increases public awareness and accelerates acceptance even more.
What Congress Can Do
|
"MSAs need a wider range of deductibles." |
The final MSA bill was the result of a number of political compromises, and it had very little to do with health policy, economic research or market demand. There is nothing mysterious about the specific provisions. The program was meant to be a pilot, a test of how MSAs would work.
Some of the issues that were hotly debated turned out to be inconsequential - like the 15 percent penalty for nonmedical withdrawals. By contrast, in some cases MSA advocates were right on target. For example, they correctly predicted that state mandates would present a real obstacle to MSA policies, and they anticipated the difficulty and confusion that would arise from the employer/employee contribution rule. But a number of unanticipated problems have emerged. For example, the disincentive to establish an MSA at the end of the year was never considered. There was some discussion of the restrictions on cost-sharing, but most MSA advocates considered the issue unimportant - probably because they took the illustration of what an MSA would look like literally. (The illustration: Take a $4,500 policy, buy a high deductible plan for $3,000 and put $1,500 into the MSA. This was over-simplified merely to illustrate the concept. It should not have been used to define the plan design).
MSA Reform.
With the benefit of this experience, we can make some specific recommendations for improving the MSA law.1. Allow a wider range of deductibles. The Medicare MSA provisions passed as part of the Balanced Budget Act of 1997 took a giant step in this direction. They defined an MSA plan as having a deductible of no more than $6,000. This allows companies to tailor their products to the specific needs of the market. A similar limit on MSAs for those under 65 would give insurers more flexibility to create MSA products that meet the needs of consumers rather than the desires of bureaucrats.
2. Allow unlimited cost-sharing. The Balanced Budget Act provision for Medicare MSAs also incorporated this idea. It is commonplace today for managed care plans to have 100 percent coverage for network providers, but only 80 percent for those outside the network. This encourages people to stay in the network, but allows them to go elsewhere for services if they prefer. The high-deductible insurance portion of the MSA package has the same needs for cost control as any other health insurance plan and should not be prohibited from using these elementary incentives. Most insurance policies already include an out-of-pocket cap on how much money an insured person can spend. While such caps will likely be more for MSA plans with high-deductible policies than a low-deductible policy, the market, not Congress, should make that decision.
3. Allow the deductible to be fully funded at any time of year and by any combination of employer/employee contributions. People who begin coverage in January need to be able to protect themselves in case something happens early in the year; those who enroll later in the year need the same protection. The tax deduction can still be tied to the calendar year, but many companies have renewal dates that start in the middle of the year, and their employees should not be excluded or shortchanged. Permitting both employer and employee contributions and allowing MSAs to be fully funded at any time during the year will help account holders set aside the money to pay their deductibles.
4. Lift the group size limit. The MSA concept needs to be tested in all market segments - from small to large employers with fully insured and self-funded plans. If Congress is concerned that the market will be overrun by new applicants, it can keep the enrollment cap of 750,000 accounts, but allow larger employers to become part of that total.
5. Fix the state mandate problem. The current situation in which MSA plans must comply with state mandates that prohibit the sale of MSAs needs to be changed. Congress could preempt state mandates to allow MSA plans (the best option) or at least allow plans to be adjusted to comply with a state's mandates.
These simple amendments would go a long way towards correcting the problems in the current MSA program. They also would demonstrate that Congress is serious about including MSAs among options for health care financing.
NOTE: Nothing written here should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any bill before Congress.