The Medical Savings Account (MSA) pilot project, created by provisions in the Health Insurance Portability and Accountability Act of 1996 (HIPAA), is scheduled to expire on December 31, 2003. The 108th Congress is expected to consider making the program permanent and removing current restrictions that limit the number of Americans who can take advantage of MSA benefits.
In October 2002, the Internal Revenue Service reported that 73 percent of Americans who purchased a Medical Savings Account in 2001 had been previously uninsured. Clearly, MSAs have provided the uninsured with a viable option by which to obtain health insurance. The U.S. uninsured population currently stands at more than 40 million, suggesting expansion of the program should be a high priority for Congress this session.
What Is an MSA?
A Medical Savings Account is a fully portable savings account funded with pre-tax dollars to pay health care expenses. By law, it must be paired with a high-deductible health insurance policy covering catastrophic losses. The MSA pilot project allows only small employers and self-employed individuals to purchase MSA plans. Funding for the account itself can come from the employer or from the employee, but not from both.
MSAs give patients substantial control over their health care spending, ideally making them more responsible consumers of health care services. The goal is to discourage small claims that are costly to process and frivolous expenditures that have helped fuel inflation in the health care industry.
Need to “Reverse Course”
In his article, “How to Cure Health Care,” published in the Winter 2001 issue of Public Interest, Nobel Laureate economist Milton Friedman observed, “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.”
Most medical expenses today are paid not by individual patients themselves, but by third parties: the government, through such programs as Medicaid and Medicare, or insurance companies. Most health insurance is provided by employers, further insulating consumers from the costs of their decisions. Patients, therefore, have little incentive to shop for lower prices and make careful decisions about the medical services they seek.
If we were similarly insulated against the cost of our meal choices in a restaurant, it’s easy to see what would happen. Presented with two meal options–a hamburger platter or lobster-and-steak combo–we’d be more likely to choose the expensive meal if “the government” or an insurance company would pick up the tab for us. By contrast, if we’re paying out of our own pocket, even if that payment is coming from a tax-free savings account provided by an employer but legally our property, the less-expensive hamburger platter might be good enough. Alternatively, if we really wanted that surf-and-turf combo, we might at least call around to three or four restaurants to find the best deal.
This simple truth lends credibility to the argument that escalating health care costs are driven, at least in part, by the current tax code that rewards those who have low-deductible comprehensive health insurance policies, to the detriment of the self-insured and uninsured.
Permanent MSA Law Needed
Since 1996, HIPAA has been a permanent fixture in the world of health care compliance. But some provisions of the act–specifically the MSA provisions–have not been made permanent. Congress still has not removed the initial restrictions placed on MSAs in the 1996 compromise that created HIPAA.
The sunsetting of the MSA pilot project at the end of the year presents the 108th Congress with an important opportunity. Rather than relegate MSAs to “bargaining chip” status by keeping the program temporary and limited, Congress ought to approve a permanent and unrestricted program. By doing so, Congress can show the interests of millions of uninsured Americans trump politics.
Kevin Waycaster is a compliance analyst at American Republic Insurance Company in Des Moines, Iowa. He can be reached at [email protected].
