NCHC Writer
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For Immediate Release: June 25, 1998

Pat Schoeni, NCHC
Economic and Social Research Institute
202- 833-8877MSAs Not a Panacea for Major Health Care Problems

Medical savings accounts, or MSAs, are unlikely to have broad public appeal or solve the deepening problems in the health care system, such as the growing number of people without health insurance and the rising costs of medical care, concludes a report by the Economic and Social Research Institute. The report, The Role of Medical Savings Accounts in Health System Reform, was funded by the National Coalition on Health Care.

MSAs are an alternative form of health insurance, now being sold nationwide on an experimental basis under a law passed by Congress in August 1996. They combine high-deductible coverage with a savings account to be used for medical expenses. MSAs are available to individuals and to firms with 50 or fewer workers. A maximum of 725,000 accounts can be established by December 31, 2001. Beginning next year, Medicare beneficiaries will also have the option of establishing an MSA, with a limit of 390,000 accounts by December 31, 2001.

Industry experts estimate that about 125,000 Medical Savings Accounts have been opened since they were made available in January 1997. Insurers and banks are required to report the precise number of MSAs to the IRS each year. The latest IRS data showed 22,051 accounts as of June 1997.

Proponents of MSAs, according to the report, offer a number of arguments for this approach:

  1. Typical front-end coverage creates incentives for excess spending on medical services because once people pay the small deductible, they are spending other people’s money.
  2. People with MSAs, on the other hand, pay the full costs of coverage with their own money until they reach the high-deductible level of expenditures, so they have strong incentives to economize.
  3. The availability of MSAs could help correct the problems many people have with the cost constraints of managed care. People with MSA coverage have complete freedom to decide how medical resources should be allocated for their treatment.
  4. MSAs may reduce insurance administrative costs. A large proportion of people covered by MSAs will not spend enough in a year to become eligible for reimbursement; thus they will not submit claims for insurers to process.
  5. Costs may be further reduced because insurers will be getting a profit margin on a lower premium base, since MSA premiums are lower than front-end coverage premiums.

However, the report concludes that MSAs are unlikely to solve the following problems in the health care system for these reasons:

  1. The growing number of uninsured — Even if the popularity of MSAs were to grow more rapidly in coming years, the analysis indicates – and most experts agree – the majority of MSA buyers will be people who are already insured, healthy, and have relatively high incomes (and want to shelter some money in a tax free account). Studies show that most uninsured people have household incomes below $30,000. Although MSAs are less expensive than other forms of insurance, the price is still likely to be more than many low-income, uninsured individuals and families will be willing or able to pay.
  2. The rising cost of medical care — MSAs would save some families money by reducing their insurance premium. But those families may be vulnerable to spending all the money in their accounts in some years. In theory, MSAs also may reduce health care spending by discouraging some consumers from seeking care they know they are paying for – rather than an insurance company. However, the magnitude of such savings for the system will be minor. That’s because low-end, routine expenses (below the MSA deductible limit) are a relatively small proportion of the nation’s total health care tab. For example, in 1995, 78% of adults had health care bills below $2,000. Yet, these bills accounted for only 13% of the nation’s total medical expenses. In contrast, the 10% of adults who had medical bills in excess of $6,000 accounted for 84% of total medical expenses. MSAs are unlikely to have a substantial impact on the major underlying causes of rising costs, such as increased use of advanced medical technology and the aging of the population.
  3. Inequalities in access to care — Lower-income people who purchase MSA coverage could forgo or delay needed care – and perhaps especially preventive care such as vaccinations or cholesterol screenings – to avoid paying out of their own pocket and to preserve their MSA savings. This would tend to undermine recent efforts in the health system – both inside and outside managed care plans – to promote preventive care.
  4. Improving the quality of health care — Managed care plans are being pushed increasingly by both government and private industry to measure what they do and to prove that it’s the best they can do. MSAs tied to high-deductible “fee-for-service” insurance coverage would have no such systems or requirements in place. Indeed, consumers with MSAs would gain choice – by being able to go to any doctor they want – but much of their care would not be under the oversight of plans with formal quality enhancement programs in place. To that extent, MSAs go in the opposite direction of current health quality improvement efforts.

“This report tells us that we need to watch the MSA experiment very carefully over the next few years, especially as MSAs are open to Medicare beneficiaries,” says Dr. Henry Simmons, president of the National Coalition on Health Care. “As a matter of public policy, while MSAs may tempt some more affluent consumers, we need to evaluate whether MSAs ultimately could undermine our goals for improving the system and extending insurance coverage to all Americans. They are clearly not the ‘panacea’ some of its proponents claim,” he added.

The Economic and Social Research Institute is an independent group that conducts research and policy analysis in health care and social services. The Institute specializes in studies aimed at enhancing the effectiveness of social programs and improving the way health care services are organized and delivered.

The National Coalition on Health Care is the nation’s most broadly representative non-partisan alliance working to improve America’s health and health care system. Former Presidents Carter and Ford serve as Honorary Co-chairs. Its almost 100 organizational members include large and small businesses, labor unions, consumer groups, religious organizations, physicians groups, and academic health centers. These organizations represent or employ 100 million Americans.

Copies of the report are available by contacting the National Coalition on Health Care at (202) 637-6830 or through the Coalition web site at http://www.americashealth.org.###

For more information, contact the Coalition at [email protected] or call (202) 637-6830.

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