Permanent Enactment of Medical Savings Accounts Is Needed

The Medical Savings Account (MSA) pilot project was created by provisions present in the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Since that time, MSAs have remained a central issue in America’s continuing health care debate.

A Medical Savings Account is a fully portable savings account that is owned by the individual policy holder. The pre-tax dollars put into it are used later by the employee for the purpose of funding health care expenses. With an MSA to help take care of the smaller bills, a worker would need high-deductible insurance only for the larger, or catastrophic expenses. That makes insurance more affordable to either him or his employer because high deductibles mean lower premiums. Currently, an MSA account can be sold to only small employers and self-employed individuals.

Unused monies held in such accounts at the end of the year are rolled over to the next year. Therefore, it is conceivable that a sizable sum of money can be accumulated in such an account for use in paying for routine health care expenses. For example, say an individual becomes unemployed. Access to the funds available in the MSA account would afford such individual the ability to pay for coverage in the private insurance market until they are again able to gain employment.

This example may raise a point of contention with opponents of MSAs who say that the concept is no good since it does not provide adequate coverage if an individual experiences a major illness. But that’s precisely why MSAs have been designed to work in unison with a high-deductible major medical policy that will provide health care coverage in the case of major medical expenses. It is important to remember that the MSA account represents the account that covers only those medical expenses that are considered routine. Insurance takes care of the rest.

In his article, "How to Cure Health Care", famed economist Milton Friedman observes that, "The high cost and inequitable character of our medical care system is the direct result of our steady movement toward reliance on third-party payment. A cure requires reversing course, reprivatizing medical care by eliminating most third-party payment, and restoring the role of insurance to providing protection against major medical catastrophes."

For a better understanding and deeper appreciation of Friedman’s contention, one must understand that consumers are basically insulated from the true cost of health care expenditures by third-party payers in the person of employers or the government. The basic premise of arguments in favor of MSAs is that putting people in control of their own money will make them more responsible consumers of health care services thus creating a decline in frivolous expenditures that increase the cost of obtaining health care insurance on a broad scale.

A good example of this phenomenon comes in the form of a visit to a restaurant where the consumer is presented with two meal options: hamburger or steak and lobster. If someone else is picking up the bill for this meal, the consumer is less sensitive to the price issue and is more likely to opt for the more expensive meal. If he’s paying for it out of his own pocket, even if it’s from a tax-free savings account, he’ll think twice and be more careful of how he spends his money.

This simple truth lends credibility to the argument that the increased cost of providing health care is partially driven by consumers’ lack of responsiveness to cost issues since they are insulated from the health care funding process by third party payers.

Additionally, MSAs would put health care consumers in direct control of funds provided for the purpose of paying for health care expenditures. MSAs would allow health care consumers to avoid the costly expense of paying for mandated benefits and pay for only those health care services consumed by the individual. In a November 1997 letter to Rick Smith of American Association of Health Plans, John Shiels of the the Lewin Group stated that every one percent increase in health care premiums causes 300,000 to drop their insurance coverage nationwide. Not only would the MSA concept save health care consumers money and allow them to avoid costly mandated benefits, it would also give previously uninsured individuals a way of obtaining affordable health insurance.

America’s uninsured population currently stands at 40 million plus. In October of 2002, the Internal Revenue Service (IRS) announced that a staggering 73 percent of Americans who purchased a Medical Savings Account (MSA) in 2001 were previously uninsured. This statistic provides clear evidence that refutes the claim of some critics of the MSA concept that say that MSAs do not provide uninsured individuals with a true option by which to gain health insurance.

The logical question to be asked when presented with the above data is, "What can be done to make MSAs more available on a larger scale?" Since 1996, the HIPAA has been a permanent fixture in the world of health care compliance. However, some provisions of the HIPAA, specifically MSA provisions, have not been made permanent. Furthermore, the United States Congress has failed to remove the initial restrictions that were placed on tax-qualified MSAs in the 1996 compromise that created the HIPAA.

By continuing with the status quo, some in Congress seem content to relegate MSAs to bargaining chip status granting them only temporary authorization and limiting their availability. By doing this, they ignore the fact that Medical Savings Accounts do provide some relief to the burden of America’s uninsured population. Keeping this in mind, the United States Congress should provide for permanent enactment of MSA statutes after removing all restrictions that limit the uninsured from access to a proven method of obtaining health insurance that will help control the nation’s health care costs. Currently, the MSA Pilot Project is scheduled to expire on December 31, 2003.

While the 107^th Congress adjourned with no action on MSAs beyond passing a one-year extension of the project, prospects for action on MSAs in the 108^th Congress are good. Previous MSA proposals in Congress have ranged from seeking permanent enactment of the statute that created MSAs to removal of all restrictions on the availability of MSAs. While no specific MSA proposals have been mentioned for the 108^th Congress, President Bush has announced that permanent enactment of MSAs occupies a major role in his legislative agenda. With a Republican-controlled House and Senate willing to follow his direction, President Bush should be able to capitalize on his leadership role and accomplish the goal of obtaining permanent enactment of the statute creating MSAs.

Medical Savings Accounts are not a panacea for all of the problems currently plaguing America’s health care system; however, they do represent a viable option that will help provide greater individual control of health care expenditures, reduce dependency on third party payers thus reducing health care costs, and reduce the number of uninsured Americans.

The United States Congress should assist America’s uninsured population by making MSAs available to all Americans on a permanent basis.

Kevin Waycaster is a Compliance Analyst at American Republic Insurance Company in Des Moines, Iowa and can be reached at 515-558-6582 or kevin_waycaster@aric.com.