Patient Approach

When Medical Savings Accounts were created by federal legislation in 1996, they were heralded as a revolutionary free-market concept that would forever change the means of financing health care services for Americans. Now, President Bush and Congress have birthed a more robust version of MSAs: Health Savings Accounts. While HSAs are not the final solution to America’s health care needs, they offer promise.

HSAs were created during the recent overhaul of Medicare, and they are intended to replace MSAs, which were launched as a pilot project and recently allowed to expire. In many ways, HSAs are similar to MSAs: They are accounts to which individuals who purchase high-deductible health insurance can contribute money tax-free in order to save for health care expenses. The accounts are "fully portable," meaning that they are owned by individuals and do not dissolve when a person changes jobs. Typically, an owner of an HSA will use the account to pay for less expensive health items and services, such as simple medications and physical exams, while allowing insurance to cover expensive services, such as hospital stays. People who currently have MSAs are allowed to "rollover" the money in their accounts to new HSAs with no adverse tax consequences.

Nevertheless, there are important differences between the two accounts that make HSAs more attractive than their predecessors. The insurance policies that individuals must purchase to be eligible for an HSA have lower deductibles than with MSAs. Contributions from both employers and account holders are permitted with HSAs; with MSAs, federal law limited contribution options to either individuals or employers.

The most important difference, however, is that there is no countrywide cap on the number of HSAs that can be created. Any individual below the age of Medicare eligibility may open a qualified high-deductible health plan for the purpose of opening an HSA. With MSAs, only self-employed individuals were allowed to open an account, and the total number of MSAs could not exceed an enrollment cap established by Congress.

Consequently, HSAs are less likely to fall victim to political gamesmanship in Washington D.C. Congress or the president could alter MSAs virtually at will, since few people owned them. The House Ways and Means Committee, however, has estimated that by the end of 2004, one million HSA accounts will have been opened, with three million in existence by 2013. The existence of millions of HSA owners will preclude extensive tampering with the new accounts.

There are a number of reasons that HSAs should prove to be relatively popular. Under Treasury Department guidelines, HSA monies may be placed in all investments approved for Individual Retirement Accounts, including bank accounts, mutual funds, bonds and real estate. A large number of insurers have already introduced the high-deductible health insurance policies required to open an HSA, and many small and large companies stand poised to offer the accounts to their employees.

Giving employees the opportunity to open their own health insurance policies will benefit employers in at least two ways. First, it will free them of the costly venture of self-administering a health insurance benefits package or arranging to have a health insurance plan administered by a third party. Second, employers will not be subject to the liability provisions provided in the federal Patient’s Bill of Rights.

There is a clear advantage to society in the spread of the accounts. People without access to employer-provided insurance will be able to cover more of their health care costs, rather than forgoing care (or perhaps the insurance itself).

Moreover, a key driver of health costs in recent decades has been the tax advantages businesses have in offering extensive, low-deductible insurance packages that give workers seemingly "free" money to spend on health care. The resulting spending spree has helped force prices up quickly.

With HSA plans, consumers will themselves pay for most mundane health expenses, encouraging them to spend less. Providers, in turn, will need to compete for consumers’ HSA dollars by lowering prices and improving service.

Congress should do more, however, to increase the number of people — including the previously uninsured — who open HSAs. Congress should offer all individuals below the age of Medicare eligibility a tax credit for the purpose of opening a high-deductible health insurance policy. This will make the policies easier to afford in the first place.

Ultimately, HSAs alone are not the solution needed to solve America’s health care problems. Still, they are a more workable solution than MSAs, and they make the option of affordable health insurance more accessible to all Americans.

Kevin Waycaster has written this commentary for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.