May 3, 1996
"Medical Savings Accounts are the Wrong Medicine"
San Jose Mercury News
By Timothy Taylor
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THE NUMBER of Americans without health insurance has risen from 39 million
to 42 million in the last three years, according to a study just released by the
American College of Physicians. In response to this chronic disease of the U.S.
health care system, Congress has reached bipartisan agreement on the legislative
equivalent of cough drops: a set of weak and incremental reforms to reduce somewhat
the chance that workers will lose health insurance when they move between jobs.
Republicans in the House are demanding stronger medicine. They want to enact
medical savings accounts, or MSAs. Such accounts hold the promise of certain genuine
benefits, but they are ultimately a misleading and misconceived proposal.
The idea is that a family would put, say, $4,000 into a tax-deductible MSA.
In addition, the family would buy a policy for catastrophic medical expenses.
As medical expenses arose, the family would first use the money in its MSA.
If expenses exceeded that amount, they would draw upon the insurance policy. But
if expenses were less than that amount, the family would be able to withdraw what
was left in the account at year's end and spend it for other purposes.
From a social perspective, the primary benefit of such accounts is that they
force consumers of health care to face its cost. You like seeing the doctor for
every twinge and cough? OK, but it means less money to take out of your MSA at
One classic study, done by researchers at the Rand Corporation, found that
patients who face significant cost-sharing used about one-third fewer medical
services than those who faced no cost-sharing at all - and that the lower use
of services has no impact on the relative health status of the two groups.
Medical savings accounts could also be a step toward a useful separation between
employment status and health insurance. With MSAs, a typical worker could choose:
Either receive health insurance through an employer, or take the money that the
employer would have paid for health insurance, and put it into an MSA and a catastrophic
health insurance policy.
A final advantage of such accounts is that they might give some of the young,
healthy people who are walking around uninsured a better reason to buy health
insurance. After all, insurance against catastrophic health expenses is relatively
cheap for the young and healthy.
But medical savings accounts also have two severe problems. For starters, an
MSA offers some incentive to avoid routine medical care.
I'm all in favor of moderate cost-sharing, like a $10 co-payment at each doctor's
appointment or paying 20 percent of the cost of certain procedures. But with a
medical savings account, the consumer effectively bears 100 percent of health
care costs up to the amount in the account. For certain kinds of regular check-ups
and exams, like prenatal care, it doesn't pay for society to encourage skimping.
MSAs have a deeper problem. The basic premise of health insurance is that over
an average lifetime, you pay when you are healthy and then the insurance cushions
the financial blow when you need health care. To put it another way, in any given
year, the healthy subsidize the sick.
BUT if a large number of the healthy sign up for medical savings accounts,
then they can withdraw their MSA money at the end of the year and spend it on
something else. The healthy won't subsidize the sick by as much.
As a result, those who need health care either will end up with less of it,
or they will have to pay more for their care themselves. Current health insurance
spreads the financial risk of getting sick. But with MSAs, you get a bonus when
you're healthy and end up paying more (probably through higher health insurance
premiums) after you need medical care.
The U.S. health care system needs more than the minimal treatment that Congress
and Clinton have agreed on, but medical savings accounts aren't the right answer.
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