MSA's Can Be a Windfall for All
Table of Contents
- Introduction
- Types of Health Spending Accounts
- A Drumbeat of Criticism
- Are Cost Savings from Raising Deductibles Exaggerated?
- Do MSAs Change Patient Behavior?
- Will MSAs Attract "the Healthy And the Wealthy" at the Expense of Everybody Else?
- Do MSAs Encourage People To Avoid Needed Preventive Care?
- Will MSAs Pull the Best Risks from "the Insurance Pool," Raising Costs for Those Who Remain?
- Can MSAs Help Control Costs over the Deductible, Where the Need Is Greatest?
- Conclusion
- Notes
- Appendix
Introduction
Outside of Washington policy circles, Medical Savings Accounts (MSAs) are no longer controversial.
They stirred up a fuss when the concept was first introduced some 10 years ago. But at the time, most of the attention in Washington and across the country was on the promise of managed care to deliver optimal health care and control costs at the same time.
"Medical Savings Accounts enable patients to pay directly for medical expenses not paid by insurance."
Ten years later, managed care has proven to be of limited value. It has generated a widespread "backlash" by patients, physicians, employers, and politicians. After 10 years of experience, patients believe that managed care saves money by depriving them of services they want and need. Physicians believe managed care prevents them from providing the care that is best for their patients. Employers are realizing that managed care has not actually saved them any money; it just delayed cost increases for a few years. And politicians are sensitive to the discontent of their constituents.
All of these parties have come to realize that the reasons managed care has not worked as a national policy in addressing the concerns of cost, access, quality and patient satisfaction are the same reasons Medical Savings Accounts and other consumer-driven programs are attractive:
- MSAs work to restore the patient to a position of influence in the health care system, while managed care leaves the patient as a passive recipient of other people's decision-making.
- MSAs reduce the influence of third-party payers in the health care system, while managed care makes the third-party payer the predominant actor.
- MSAs help reduce costs by lessening the administrative burden on everybody, while managed care greatly increases the amount of health care dollars that are devoted to administration.
- MSAs help to restore the patient/physician relationship, while managed care weakens those relationships.
- MSAs encourage innovation and excellence in health care, while managed care encourages "cookbook" medicine.
- MSAs allow people to seek out alternative ways of maintaining and improving their health, while managed care either forbids or discourages alternative medicine.
- MSAs encourage competition, while managed care encourages monopoly.
- MSAs facilitate portability for workers between jobs, while managed care locks workers into their current jobs.
- MSAs help assure continuity of care when patients change health insurers, while managed care disrupts continuity.
- MSAs enable people to seek the preventive care services best tailored to their own needs, while managed care covers only those services the bureaucracy prefers.
- MSAs increase quality by allowing patients to pay more to see a better doctor, while managed care tends to pay all participating doctors the same, regardless of their skill.
- MSAs allow people to build-up a source of funds to pay for future health care needs, including long-term care and insurance premiums while unemployed, while managed care concentrates solely on the current year's expenses.
"MSA's help restore the doctor-patient relationship."
None of this is to say that managed care programs are not attractive for some people, or that MSAs are the best solution at all times. The question is rather what should be the thrust of national policy? Should it be reliance on empowered consumers making informed decisions through market mechanisms? Or should we rely instead on third-party bureaucrats allocating resources according to their preferences? The latter strategy has been tried and has failed. It is well past time to empower the patient.
Medical Savings Accounts are a broad term for the notion that much of health care can be paid directly by the consumer, and that government policy should be neutral as to whether such expenses are paid through an insurance mechanism or directly by the patient. [See Figure I.] To the extent contributions to health insurance premiums are tax-advantaged, so should be contributions to an account that is dedicated to paying for health care expenses.
Once this concept is understood and adopted, consumers will be free to determine for themselves how best to allocate their resources between insurance coverage and direct payment. Some consumers may continue to prefer first-dollar insurance coverage, and they will put all their resources into premiums. Others may rather have a high-deductible health plan that covers only very expensive conditions, and pay for lower-cost services from an MSA. Still others may prefer a mix, with insurance coverage that pays for "non-discretionary" spending combined with an account for "discretionary" services. Plans might develop that cover physician and hospital services with insurance, but use a cash account for dental, vision, pharmaceutical and alternative services.
"By choosing higher health insurance deductibles, people can reduce their premium payments and put the money saved into an MSA."
The specific benefit design can vary substantially, and policy makers cannot know ahead of time what the optimal mix will be in terms of efficiency and popularity. This is precisely what markets are superb at determining. Some designs will be tried and rejected in the market. Others will succeed and become the standard for future enhancements.
The failure of managed care and the movement towards privatization in those countries with nationalized health care systems have combined to create a new imperative - one that relies on the consumer of health care services as the ultimate judge of the value of those services. MSAs and other consumer-centered models of financing are essential for allowing these consumers to make those judgments.
