When health care is virtually "free," there is almost no limit to how much we can spend on it - even if we are not sick. In recognition of this fact, other countries limit access to technology and force hospitals and doctors to ration health care. In the United States, we are moving in the same direction, as third-party payers attempt to limit physician choice and hospital access, increasingly dictate the practice of medicine and interfere in other ways with the doctor-patient relationship. Yet experience shows that no country has succeeded in controlling health care costs from the top down without severely reducing the quality of patient care.

If we want to solve the problem of rising costs without decreasing the availability or quality of care, we must change the government policies that have bureaucratized the medical marketplace and impeded market competition. Medical Savings Accounts, also called Medical IRAs and Medisave Accounts, are the most important part of this solution. [See Questions and Answers on MSAs.]

"The private sector is already using Medical Savings Accounts, and they work."

How Medical Savings Accounts Work.

Medical Savings Accounts would give individuals a new way to pay for health care. Under traditional health insurance, people make monthly premium payments to an insurer such as Blue Cross, and the insurer pays medical bills as they are incurred. Under the new system, people could confine health insurance to catastrophic coverage (say, expenses above $3,000), reduce their monthly insurance premium payments and make deposits to a Medical Savings Account instead. Insurance would pay for expensive treatments that occur infrequently, while individuals would use their MSA funds to pay small bills covering routine services.

Employer Experiences With MSAs.

• Until the IRS forced a change in the plan, Quaker Oats had a high-deductible policy and paid $300 annually into the personal health accounts of employees, who got to keep any unspent balance; the result: over the past decade the company's health care costs grew at an average of 6.3 percent per year, while premiums for the rest of the nation grew at double digit rates.
• Forbes magazine pays each employee $2 for every $1 of medical claims they do not incur up to a maximum of $1,000; the result: Forbes' health costs fell 17 percent in 1992 and 12 percent in 1993.
• Dominion Resources, a utility holding company, deposits $1,620 a year into a bank account for the 80 percent of employees who choose a $3,000 deductible; the result: the company has experienced no premium increase since 1989, while other employers faced annual increases of 13 percent.
• Golden Rule Insurance Company deposits $2,000 a year into a Medical Savings Account for each employee who chooses a $3,000 family deductible; the result: in 1993, the first year of the plan, health costs were 40 percent lower than they otherwise would have been.

Advantages of MSAs: Lower Costs.

As a consequence, patients and their physicians are often wasteful, and the administrative costs of the U.S. health care system are much too high.

If people used Medical Savings Accounts:

• According to a computer model constructed by Milliman & Robertson for the Council for Affordable Health Insurance, the U.S. health care system would save almost $588 billion over five years.
• According to a study for the Cato Institute, MSAs would lower the nation's annual health care bill by $300 billion and reduce administrative costs by $33 billion.

Advantages of MSAs: Higher Quality.

Advantages of MSAs: More People Insured.

Other Advantages.