MSAs Flourish In South Africa
March 31, 2000
Medical Savings Accounts (MSAs) give patients direct ownership of and control over a portion of their health care dollars. Unfortunately, although U.S. tax law excludes employer payments for third-party insurance from employees' taxable income, it fully taxes most MSA deposits. And a pilot program Congress created in 1996 has so many restrictions that their popularity and growth have been disappointing.
In contrast to the U.S. experience, MSAs flourished during the 1990s in Nelson Mandela's South Africa. By now, MSA products have captured more than half the South African market for private health insurance. Employer deposits to an MSA get the same tax treatment as employer payment of insurance premiums. Thus South Africa's MSA products compete on a level playing field with other forms of insurance, including HMOs.
And since the South African government never passed a law dictating MSA design, these "free market MSAs" are different, and in some ways more attractive, than the U.S. version.
- For example, one of the most popular plans has first-dollar insurance coverage for most hospital procedures -- on the theory that within hospitals patients have little opportunity to exercise choices.
- On the other hand, a high deductible (about $1,200) applies to "discretionary expenses," including most services delivered in doctors' offices.
- And while a high deductible applies to most drugs for ordinary patients, a typical plan pays from the first dollar for drugs that treat diabetes, asthma and other chronic conditions.
How can Americans get access to the same kinds of MSA products routinely available in South Africa? Surprisingly, the answer may lie in Patients' Bill of Rights legislation now in conference committee on Capitol Hill. Under the legislation, MSAs would be made permanent and available to everyone.
Source: John C. Goodman (president, NCPA), "MSAs for Everyone, Part I," Brief Analysis No. 318, March 31, 2000, National Center for Policy Analysis.
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